When to Hire a CFO

For some entrepreneurs, it may take years to achieve a sustainable cash flow, while others experience rapid growth and expansion within months. Simply put, the growth trajectory of every small business varies based on a variety of factors.

Regardless of the circumstances, a successful entrepreneur will at some point in their career wrestle with the question of when to hire a chief financial officer (CFO). While the answer isn’t always clear, the signs are. Let Jason Alexander and Kurt Dyck, CFO Business Advisors at Lucrum Consulting, explain.

Know when to say when
Don’t hire a CFO (whether full-time or fractional) just because a company’s revenue has hit a certain number. While revenue goals are definitely an accomplishment, it shouldn’t be THE deciding factor. Instead, Kurt recommends business owners focus on three key areas to help determine when the time is right.

Size
Let’s say we have an organization manufacturing a single product. Pretty simple, right? Not if its sheer size starts to outpace the financial expertise or capabilities of its leadership. All of a sudden the business owner finds it difficult to stay on top of forecasts, workflow and more. Time to consider bringing on a CFO.

Complexity
Keeping business local and dealing with nearby customers is one thing, but shifting to the national or global marketplace where hundreds of different products and clientele need to be cultivated and managed is another. Solicit the help of a CFO.

Trajectory
When a business first starts out, it’s usually predictable because the entrepreneur is familiar with the customer base and their expectations. But once the business begins to evolve it’s not uncommon to experience extreme highs and lows – possibly all at the same time. When business operations become unpredictable and the old method of managing by gut feel is not sufficient, it’s probably best to bring on a CFO.

Don’t get lost in the weeds

Success is a great thing, but when it happens quickly it can sometimes come with its own set of problems. These problems cause business owners to no longer feel as though they can trust themselves to run the company. All of a sudden, there aren’t enough hours in the day to actually run the numbers – to not only see where the organization is being successful, but also where it’s falling significantly short. Or the business owner doesn’t have the background to run the numbers once they get beyond a certain level of complexity.

Adds Jason, “Once the status quo ceases to work and the financial intelligence needed to make informed decisions is no longer sufficient, your company has started to move in a new direction – one that requires input and guidance from a CFO-level team member.”

Always look ahead
Bookkeepers and CPAs are critical to an organization’s success – they excel at either sending invoices and cutting checks or preparing tax returns and understanding recent tax law changes. But let’s face it, most of the time they’re not exactly focused on what’s coming down the road.

This is where a CFO can add value to an organization. “They’re invested in the financial future of the company. As a result, they’re continually looking ahead, taking a proactive approach. CFOs can assist with business planning, overseeing operating budgets, determining pricing, improving efficiencies, managing debt and so much more” says Kurt. “CFOs also work well with the bookkeepers and CPAs already involved in the organization.”

CFOs examine things like manufacturing costs and sales cycles for products, generating high quality, actionable data, such as an accurate ROI for the business owner. Beginning to see the benefit? And that’s just one example.

Know the impossible is possible
The average salary for a larger company CFO is more than $200,000 a year, although many small businesses have capable full-time team members who earn just into the six-figure range.  But don’t worry, hiring a financial expert IS possible and affordable, especially if a business owner uses a consulting firm. Jason and Kurt both agree, “The key is not to hire too high or wait too long.”

It makes sense. Having useful forecasts, better information and someone to ensure the financial resources and controls are in place to manage growth helps businesses identify their most valuable resources, best investments and more. That’s why on-boarding a CFO early on can only add value to the strategic direction of a company.

“Hiring a CFO was a game-changer. It was the moment we started running the business based on quantitative information, rather than qualitative information, “ says Nathan Morrison, partner/vice president of Arborscapes, Inc.  “It wasn’t a decision my business partner and I took lightly.  But in a short while, we realized that having a CFO saved us more than $22,000 in interest expenses the first year and helped us create forecasts and projections, as well as perform cost/benefit analysis for our equipment purchases. In short, hiring a CFO has greatly enhanced how we view our own business.”

Thinking of hiring a CFO or not sure if you can afford that level of expertise? Let Lucrum Consulting help. We’re more than happy to answer your CFO questions. Call us at 980.999.2100 today.