Five Signs It’s Time For A CFO

A Chief Financial Officer (CFO) oversees your entire finance department. They take on many roles and responsibilities in your organization, including:  

• Financial Planning – Creating budgets, forecasting future earnings, finding ways to lower costs, and outlining plans for growth 

• Financial Reporting – Closing out the month, generating internal financial statements, and presenting reports to stakeholders 

• Risk Management – Identifying applicable financial risks, creating action plans to manage risks, and ensuring compliance with laws and regulations 

• Cash Flow Management – Managing cash inflow and outflows, and timing payments and deposits for optimal fund levels 

• Leadership – Overseeing your finance and accounting department, serving as the "tone at the top" for all questions and decisions  

• Shareholder Management – Providing financial clarity to shareholders and the board of directors, working with lenders and investors, and communicating with auditors  

While you won't find a one-size-fits-all answer on when it's time to hire a CFO, there are a few early indicators. Let's explore five signs it's time to hire a CFO.  

Uncertainty Surrounding Revenue 

Revenue is the lifeline of any organization. After all, if you aren't generating revenue, odds are you won't be in business very long. This makes it important to have clear visibility into your revenue. Can you answer these basic questions?  

• What is our main revenue stream?  

• By what percentage has each revenue stream grown by each year? 

• Are there underperforming products or services?  

• Does revenue align with your profit?  

 If not, a CFO might be the solution. A CFO takes the time to understand your financial statements, specifically in your revenue account. This prepares them to answer shareholder questions, uncover new growth strategies, and fully understand the sources and characteristics of your revenue.  

Poor Cash Flow Management  

Cash flow management is another essential function of running a successful organization. Tracking the inflows and outflows of your company allows you to maintain a steady bank balance, meet payment obligations, and plan for growth. Can you confidently say that:  

• You know exactly when large payments or deposits are hitting your bank account.  

• You have at least six months of operational expenses in your checking account and the rest in a high-yield savings or investment account.  

• You never miss a vendor payment or bounce payroll.  

• You rarely write off accounts receivable as uncollectible.  

If you have any of the above shortcomings, it's time to hire a CFO. A CFO can create cash forecasts to optimize your working capital and control costs. For example, if your CFO notices your cash levels are low, they might draw on a line of credit or strategically time deposits and payments to avoid overdrafting. With the right cash flow management controls in place, your business can flourish and eliminate worry surrounding your cash balances.  

Rapid Growth, Lagging Financials  

Does it feel like your business is rapidly growing? Signs of rapid growth might include excess cash in your checking account, high customer demand, and endless opportunities. However, it can be difficult to pinpoint the sources of your growth and how you are deploying your resources with lagging financials.  

For example, if it takes your business weeks after the month closes to generate financial statements, the documents will not be very useful. A CFO helps your team prioritize financial statement generation. With the proper oversight and dedication, you can use timely financial statements to plan and adjust the next reporting period to meet your strategic financial and operational goals.  

Major Business Decisions in the Pipeline 

Major business decisions often rely on financial information. Having a CFO to compile financial reports, statements, and other information is a crucial component of making informed decisions. Here are a few types of major business decisions that a CFO can help with:  

• Capital raises 

• Mergers and acquisitions  

• Business expansion and market entry 

• Investment and capital allocation 

• ESG integration 

• Technology advancements and adoptions 

Making an uninformed decision can be costly. If you have major decisions in the pipeline, consider bringing on a CFO.   

Overworked Team  

Your company's biggest asset isn't your main piece of machinery or your office building; it's your team. An overworked team can have repercussions throughout your entire business, from poor customer satisfaction and lower revenue to low efficiency and productivity. A CFO supports your team, even outside of the finance department, by:  

• Delegating tasks and balancing workloads 

• Pursuing productivity and efficiency, such as by outsourcing certain tasks 

• Hiring skilled talent to shift work 

• Monitoring performance and addressing bottlenecks 

• Facilitating communication between team members and departments 

• Finding the right resources to support team members 

If your team is feeling burned out, hiring a CFO can be a great way to restore morale and build a positive work environment.  

There are three types of CFOs that your business can bring on. Let's briefly cover the fundamentals of each.  

Full-Time 

A full-time, in-house CFO is an extension of your team. They work like any other employee on a set schedule and for a fixed salary (or hourly rate). A full-time CFO is a great option if you've outgrown part-time help. Generally, companies with over $10 million in revenue will bring on a full-time CFO. However, you can add a full-time CFO before this revenue threshold if you are experiencing rapid growth.  

Fractional  

A fractional CFO is a part-time individual who helps your company on an as-needed basis. This professional might work a few hours after the month-end, during peak busy times, or on certain projects, like a capital raise. Fractional CFOs are great additions if your business is experiencing growth, preparing for a major event, or needs basic financial clarity, all on a part-time basis.   

Outsourced  

An outsourced CFO is an independent third party (or company). These professionals commonly work part-time or on an as-needed basis, similar to a fractional CFO. Outsourced CFOs are ideal if you want to save on payroll taxes, prioritize independence, or don't have the need for an in-house employee.  

A good CFO blends technical, leadership, and analytical skills to lead your finance department and steer your company toward success. Here are a few of the key characteristics to look for in a CFO:  

Leadership Capabilities 

Your CFO should have leadership capabilities. After all, they will be heading your finance department and a part of your C-suite executive team. They should be able to seamlessly collaborate with other departments, serve as a motivating force for your team members, and take the initiative to foster a strong workplace culture.  

Technical Skills 

Technical skills are non-negotiable for a CFO. They need to be able to complete various financial tasks, such as closing out month-end, generating and deciphering financial statements, preparing forecasts and budgets, and identifying and managing risks. These technical skills are accompanied by some type of formal education, such as a bachelor's or master's degree in accounting or finance. In addition, your CFO might hold a Certified Public Accountant (CPA) or a Chartered Financial Analyst (CFA) designation.  

Soft Skills 

Soft skills are just as important as technical skills. They help your CFO communicate and collaborate with other team members, lenders, and investors. Soft skills can include strong communication, effective problem-solving, and creativity. Your CFO should also be flexible, have a strong work ethic, and possess critical thinking skills. The right CFO will have refined soft skills, equipping them to effectively lead your team. 

Experience 

CFOs often have years of experience in finance and accounting. In fact, most CFOs have over ten years of experience helping companies transform their finance functions. Evaluating the experience of your CFO will help you select the right candidate. For example, you wouldn't want to hire a fresh college graduate. Instead, you want a professional with years of experience in the CFO position and a proven track record of results. Similarly, try to find a CFO with experience in your industry. The finance function of an ecommerce company is vastly different from that of a manufacturer.  

A CFO might be the missing piece in your company. If you've decided it's time to bring on a CFO, avoid these five common mistakes.  

Hiring the Wrong Type of CFO 

When onboarding a CFO, it's important to choose the right type. For example, if your business has the need for a full-time CFO, don't bring on a fractional CFO. Take the time to understand your company's needs before starting the hiring process.  

Dismissing Your CFO's Advice 

CFOs have years, sometimes even decades, of experience in finance. After all, one of the primary reasons for hiring a CFO is for their advice. Your CFO should be your partner in making decisions. Take the time to listen and understand their advice, even if it challenges your thinking and reasoning.  

Waiting Too Long 

Delaying the hiring process can cause serious financial damage. The insights and experience a CFO brings help you to avoid rushed decisions, missed opportunities, and other costly mistakes. Even though a CFO might charge a high hourly rate or salary, the financial clarity that they offer is indispensable.  

Hiring the Wrong Cultural Fit 

Every company has a culture, making it important to add team members who fit within your existing system. For example, if your workplace culture is laid back, bringing on a CFO who is rigid and inflexible wouldn't be a good fit. This can lead to the opposite of financial transformation, with unhappy and inefficient team members. Be honest and transparent about your cultural needs during the hiring process to find the right candidate.  

Recruiting a Mini-Me 

Similar people tend to flock together. When going through the hiring process, it can be easy to select a candidate who's like you. However, recruiting someone too similar can lead to a lack of diversity in ideas, decisions, and perspectives. A CFO should offer unique opinions, insights, and ideas.  

Are you ready to onboard a new CFO? Whether you are already in a growth phase or plan to be, a CFO is a key component of making informed financial decisions and reaching your full scalability potential. For assistance in determining if it’s time for a CFO, reach out to one of our team members today.