Yes, You Really Do Need a CFOc-leveled.com /yes-you-really-need-cfo/

One the most appealing aspects of an early-stage or small-to-medium-sized business is theopportunity provided to all employees to learn and grow as individuals. There are never enoughpeople to perform all of the tasks required, so everyone ends up ‘wearing a lot of hats.’

However, there’s one role in every company that needs to ‘hit the ground running’ with minimumon-the-job training. That role is the CFO.

I already have an accountant. Do I really need a CFO?

Accountants and bookkeepers are crucial in a business of any size. They’re responsible for allthings compliance – tax returns, financial statements, payroll, day-to-day accounting activities.These functions are crucial to the effectiveness of every business.

But when does a company need a CFO?

A CFO’s role is different from an accountant’s or a bookkeeper’s. An effective CFO is a member of

the senior management team who contributes to a company’s strategy and tactics as viewedthrough a financial lens. She formulates financing strategy, forecasts the business’s cash flowperformance, has cross-functional knowledge, interacts with the company’s board of directors andcan represent a business externally with banks, vendors, customers and investors.

Here’s a sports analogy (sorry):

Accountants keep score. CFOs call the plays (financial plays, that is).

So, a better question is, “Do I need a full-time CFO?”

If an early-stage business or an established business with less than $20M in revenue asks thatquestion, generally the answer is no. There are always exceptions of course; for example,businesses that manufacture products internally have more complex requirements and may requirea full-time CFO. But the majority of the time, a company with a strong accounting function canbenefit greatly from a part-time CFO without breaking their piggy bank.

Ok. I get it. But what would a part-time CFO do for me?

Well, it depends on the stage and size of your company.

CFO for early-stage companies…

Let’s say an early-stage company has bootstrapped its initial product and is now ready to raise itsfirst round of outside equity. An experienced CFO will help the company present the business ina way that resonates with investors and will ensure that the due diligence can be navigatedsuccessfully.

Every early stage investor will tell you that they expect a 10-fold return on their investment. Thinkabout that:

If you raise $200K in angel funding, your investors expect 2 million dollars to be returned to them.

The common, prevailing logic right now is that since it is so difficult to forecast revenue and netincome for start-ups, it’s a waste of time to try. The entrepreneurs at C-leveled disagree with thiscommon, prevailing logic (not the first time that’s ever happened).

It’s true that every forecast for a young business is mostly, maybe completely, wrong. It’s also truethat the thinking required to grind through the forecasting process results in very real benefits.Modeling is a learning process; and when it’s augmented with experimentation in the real world,founders start to understand the real financial dynamics that dominate their business.

A financial model is the medium to quantify those learnings and their potential impact on abusiness. Use of funds, burn rate, exit potential, hiring plans, revenue drivers – this is the languagethat CFOs speak.

CFO for mature companies…

At the other end of the spectrum are mature, revenue- and profit-generating companies thatpredictably deliver $15M to $20M in revenue, year in and out. It is very common in companies like

this for the CFO position to be staffed with an individual that ‘came up through the ranks.’ Manytimes, the incumbent is too insulated from a broader business perspective. They simply do notpossess the skills to truly add value as a CFO.

One way to expand perspective is to compare a company to its peers. There are several goodquant benchmarking tools available now for companies in this revenue range. A CFO can interpretthe data and distill it down to corrective actions that will result in a stronger, industry-leadingbusiness.

Also, a CFO can help prepare the company for growth resulting from new products, new markets(international), and acquisitions. She can help to assure that processes are scalable, that thecompany is still measuring the correct performance drivers, and that the company’s capitalstructure can support the forecasted growth.

Providing the company’s current CFO with outside, experienced ‘clinical’ assistance can increasethe value of their contribution without subjecting the business to the pain (which can be fatal)required to learn the role and to participate as an integral member of the management team. Onlya few hours per week with an experienced CFO can have a transformative impact on an individualwho desires to make the step up, while also having a significant positive impact on the business.

Margin analysis, inventory turns, DSO, line of credit, process improvement – this is also thelanguage that CFOs speak.

So there you have it. CFOs aren’t just for gigantic, publicly traded companies. Every businesscan benefit from senior guidance from an experienced CFO. And it doesn’t have to kill yourchecking account to ratchet up your business effectiveness. Just pay for what you need. Any goodCFO worth her salt would tell you that.