If you are following a lean start up philosophy, the cost of a full time CFO may seem like a luxury.
After all your focus should be to create a minimal viable product and get it out to prospective customers.
If you don’t have any revenues why would you want a CFO?
While there is no cut and dried answer to this question, here are six factors to consider when evaluating whether to hire a full time CFO.
Are you sleeping at night?
If you are a CEO and you do not have a firm (and detailed) grasp of your company’s financial position, you may wake up in the middle of the night worrying about it. Remember many young businesses fail because they run out of cash when they are growing too fast – over trading. If you are in this position, it may be time to make that CFO hire you have been putting off.
If you do not have a detailed grasp of your financial position of the company it is very difficult to make objective and informed business decisions. Should you invest, divest, expand or contract? What is your profit margin? How do your fixed and variable costs break down? Can you financially evaluate two possible options? Making bad business decisions can cost you far more than the cost of a CFO.
Complexity can be measured in a number of ways but none of them have anything to do with absolute levels of revenue.
- The number of products or services you deliver
- The number of countries in which you operate
- The number of suppliers to your company
- The number of customers
- The number of employees
- The complexity of your channels to market
These are just six examples. As your business becomes more complex, the need for a CFO grows with the added complexity as your finance function will need proper leadership and control. A good check is to see how long it takes for invoices to go out or how quickly the monthly finance report is produced each month.
Size of course plays a role in this discussion. As businesses grow in size they need more structure and systems and this required functional experts within key roles, including finance. The complexities of the accounting and tax systems alone mean that such matters cannot be left to novices. Even if you can rely on your accountants to do much of this work, there comes a time when outsourcing the problem is not the answer.
Steady state businesses have a predictability of sorts which means that you may not need a CFO. If your business is growing quickly (or equally if you are contracting), managing the considerable day to day challenges requires an expert in control of finance. If there is any doubt in your mind about your cash position and your future cash flow forecast either way, call for the recruitment consultant and get hiring.
One of the key success factors in attracting external investment is being able to present a comprehensive and financially coherent business plan. The preparation of a financial model is only the start and investors expect regular, monthly reports on the performance of the business and how well you are keeping to plan.
This work is best achieved by a finance director who will create confidence in the financial competence of the management team as a whole. Just as importantly, if this work has to be done by the CEO, he (and I mean you) will not have as much time to carry out his main function of running and growing the business, particularly in client facing activities.
So, it’s down to you then. This is a key decision for you to make for your business and it deserves careful evaluation. Hopefully, this will help you to address the issue objectively.
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Thank you, as ever, for joining the Conversation!