Is CFO Important to Businesses and Why Do I Need One?

Are you a business owner who is struggling to keep all the financial aspects of your company afloat? You might be familiar with hiring a bookkeeper and a tax filer, but have you ever considered bringing in a CFO?

From managing your finance and accounting team to owning the human resource function, the CFO's responsibilities are crucial to your business's success.

What is a CFO and What Do They Do?

A CFO, or Chief Financial Officer, is a strategic financial advisor who oversees the financial activity of your entire company. They assess the financial health of your business and develop strategies for achieving your vision, given your financial constraints.

But that's not all - they also build and manage your finance and accounting team, and in some cases, they even own the human resource function. The day-to-day activities of a CFO can vary widely, depending on the business's structure, needs, and maturity. So, do you know when should you consider bringing on a CFO? Let's dive into the details.

When is it Necessary to Hire a CFO?

1. You Need to Secure Substantial Funding to Support its Growth Plans

As a small business owner, you may start with minimal funding from family, friends, or bank loans. However, as your business grows, you will require more substantial funding to pursue expansion plans. For instance, if you plan to enter a new market, you may need a considerable amount of capital to buy equipment, hire staff, and promote your business. Instead of taking on more debt, you may opt for equity financing, which demands specialized expertise.

This is where a CFO comes in. A CFO with experience in capital raising can help you set goals, assess your readiness, and craft a compelling story to attract investors. They will also help you perfect your pitch to ensure that you deliver it confidently while responding to challenging queries from potential investors, thereby increasing your chances of securing funding.

2. Company is Struggling to Grow due to a Lack of Financial Leadership

As a company grows and shifts focus from achieving traction to scaling up, it becomes impractical for the founders to handle everything themselves. However, if the CEO or COO is still spending an excessive amount of time on finance and accounting-related tasks, it is time to consider bringing in a financial leader. For instance, if a bookkeeper handles invoicing and bill payments, but the CEO must still approve their work, it can create bottlenecks that lead to cash flow problems and unsatisfied vendors and employees.

This scenario typically happens when a company reaches around $2-$3 million in annual revenues. To keep the business running smoothly, delegation is necessary. A CFO can set up processes to prevent accounts receivable, accounts payable, or vendor issues from hindering growth. They are also responsible for managing banking relationships, negotiating insurance needs, and overseeing real estate transactions.

3. Your Company’s Financial Infrastructure is Outdated or Inefficient

As your business grows, so does the complexity of your financial infrastructure. In the early stages, you may have relied on basic accounting software and simple processes, but as you expand, your needs will evolve. This could mean upgrading to a more sophisticated accounting solution such as Xero that integrates with other systems or developing more comprehensive policies and procedures around areas like hiring, compensation, and diversity.

To ensure your company is well-equipped to handle these changes, a skilled CFO will collaborate with your finance, accounting, and HR teams to identify and implement suitable systems and best practices.

4. You Need an Executive-Level Presence to Communicate Financial Data

CEOs who are successful understand their strengths and weaknesses and seek to bring on board individuals with complementary skills that can help their company thrive.

For example, some CEOs may excel in areas such as sales, marketing, or product engineering, but may not possess the necessary financial acumen. In such cases, it would be wise to consider hiring a CFO to assist in developing and presenting financial reports in critical meetings with investors, bankers, and board members, as this will enhance stakeholders' confidence in the company's ability to achieve its objectives.

In general, if you encounter strategic financial issues that your current finance team is unable to address, it may be worthwhile to consider hiring a CFO.

Making the Right Financial Decision

Do not let financial challenges or lack of expertise hold your company back from achieving its full potential. Whether you need a full-time CFO or a fractional CFO, it all depends on your company's specific needs and budget.

Here at Accounting Superhero, we do offer out-sourced CFO services as well. This will be ideal for companies who are on a more tighter budget. Reach out to any of our Superheroes to enquire.

Take the time to find the right person who can provide strategic advice, help you grow and scale with confidence, and build a strong financial infrastructure. Remember, making the right financial decision can be the difference between success and failure.