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Does Your Company Need A CFO?

BusinessManagementAs your business moves to the next level, your management team must also evolve.  It becomes necessary to have a position dedicated to handling a company’s growth and strategic financial planning.  A chief financial officer (CFO) fulfills this function and more.  A great CFO performs accounting and cash flow duties, but, additionally, helps to protect the long-term financial needs of a company.

In each of the following roles, the CFO provides financial information that can be measured and managed to make informed decisions about a company’s future:

Controllership duties.  In the role of controller, the CPO is responsible for accounting and financial reporting, handling mandatory financial filings and preparing financial statements.

Treasury duties.  As the corporate treasurer, the CFO manages the company’s cash investments and excess cash flow; liquid and non-liquid corporate assets; banking relationships; and protects business ownership through succession and estate planning.

Economic strategy and forecasting duties.  The CFO helps create business plans, performs short and long-term financial and cash flow planning; analyzes cash needs and usage; and develops growth strategies relating to the company’s capital needs.

A CFO must be innovative, creative and able to add value to all areas of a company, whether in operations, production, or sales and marketing.

The Missing Team Member

If a CFO performs these important and essential roles for a business, then why is the position missing in the management structure of many companies?  Unfortunately, too many owners are unaware of the value a CFO brings to an organization.  Many owners are satisfied to see money coming in, bills being paid, checks clearing the bank and the accountant preparing the company’s tax return.  In addition, most owners are also wrapped up in day-to-day operations and don’t have time to look at the company’s long-term growth and stability; this approach, however, leaves valuable money on the table.

In companies that function without a CFO, the CEO, a bookkeeper, controller or outside CPA may handle some of the CFO’s roles.  The financial analysis and reporting these professionals provide, however, only makes up a fraction of what the management team truly needs.

Financial reports are a scorecard of how the company performed in a given time period. If these reports—often in the form of a financial dashboard—are not produced monthly (and in some cases, daily), then management cannot make the quick, informed decisions necessary to survive in today’s economic environment.

Key questions go unanswered, including:

  • Where is the company from a break-even standpoint?
  • Can management afford to discount services?
  • Can the company take on new projects?
  • Is cash available for short and long-term capital needs?

Owners and management teams that can’t answer these questions are at a significant disadvantage.  Information is crucial to success.  Those who hesitate miss opportunities, experience inefficiencies and fail to make small changes and tweaks to the business that will maximize profits.  Even worse, problems can crop up without management’s knowledge, such as theft, embezzlement, multiple sets of books being kept, lack of inventory control, bills not being paid, receivables going uncollected or change orders being paid under the table.  In these cases, the worst scenario is that the business will fail.

Bringing a CFO on Board

Finding and hiring a CFO takes time.  Often a company hires someone from its accounting firm who knows the organization on several levels.  Or, a current employee may move up from an accounting or controller position to assume CFO duties.  Additionally, companies may hire an experienced CFO from another firm.  A CFO typically has an accounting or a finance degree and, possibly, an advanced degree or professional certification.

The right educational background and professional certifications are important for several reasons.  First, a CFO must be an expert in numerous areas, from accounting and payroll to finance and wealth management.  The CFO must hit the ground running and cannot afford to take time for basic education. The only learning curve should involve understanding the ins and outs of that particular company.  Second, a professional certification such as CPA, or certified financial planner, helps to ensure that a CFO meets industry standards for experience and knowledge and operates in an ethical manner.

Since the CFO is a part of the senior management team, compensation should be incentive-based and tied to the overall success of the company.  A CFO’s goals must be aligned with those of the owner.  When the profitability and cash flow position of the company are in the best interest of the CFO, it represents a win-win situation for all.  Then, the CFO can help incentivize the compensation for other departments and employees.

To ensure a CPO performs in a responsible, legal and ethical fashion, owners must put checks and balances in place.  For example, an outside firm can perform an annual audit or review the company’s books.  Also, management can split financial responsibilities among the company’s staff, so that one person doesn’t control the flow of all the money.

One employee, for example, might handle receivables, while another pays the bills, all under the supervision of the CFO.  This way, multiple employees form an internal system of checks and balances, which guard against theft, overpayment and other problems that often plague companies without a CFO.

‘C’ Doesn’t Stand for Costly

Company owners shouldn’t be scared by the ‘C’ in CFO.  In fact, a good CFO will pay for himself by finding new profits and savings and improving management.

Unfortunately, many owners feel ignorance is bliss, when it comes to the true state of their finances. Just as avoiding a trip to the doctor doesn’t prevent illness, ignoring the company’s finances doesn’t prevent serious financial problems.  Savvy owners learn to address financial realities head on and allow a reliable CFO to keep an eye on the bottom line.