I chose to become a 1099 CFO in 2001. I already had four clients by the time I wrapped up my first month as a new consultant.
Not much has changed in terms of the basics–helping CEOs to connect the dots between marketing, sales, operations, and financial results, that’s the biggie. Other essentials include understanding liquidity, working capital simplification, and staying a few steps ahead of our financial capital requirements.
Low-stress acquisitions, minor turnarounds, start-up funding, ERP implementations, hiring and mentoring team members, and mentoring B2B sales teams are part of the job too.
I’m just scratching the surface.
But Do You Really Need a CFO?
I’ve never liked responding to that question. It’s too self-serving in my opinion.
I prefer to look back on those first clients to help me answer that question, and it may surprise you.
No, you do not need a CFO. That’s the short answer. The longer answer is, “It depends.”
There’s another nuance to this question. It’s about the title. I’ve reached a point in my career where I roll my eyes when I see many small accounting agencies touting their new CFO services. Yet, I bet many have never worked 10-15 years as a CFO in private industry.
I’m now seeing 20-something professionals saying they are CFOs. While I’m proud of my accomplishments when I was in my 20s, I was no CFO. I lacked the necessary experience to tell a 50- or 60-year-old CEO that she was making a serious mistake on a hiring decision or adding a certain customer that would hurt the business.
I’m exaggerating when I say everyone says they are a CFO. But in this small corner of the world of financial services, there’s much truth in the statement.
As we examine the question about needing a CFO, don’t focus on the title, focus on the job to be done where you have pain points.
Here’s What You Really Need
Let’s start with the small $1 to $2 million dollar enterprise. You need an experienced bookkeeper and I prefer the type having at least 12 hours of accounting from any college and at least five years of experience working under an experienced controller. An office manager who is thrown into QuickBooks should never be in charge of your accounting. Furthermore, your bookkeeper should be certified. I’m partial to the program at the American Institute of Professional Bookkeepers.
Your experienced bookkeeper will make sure your bills are coded accurately and paid in a timely manner. They should be able to nail the daily treasury management function with ease including a simple weekly cash flow forecast. Payroll should be a low-stress process for the experienced bookkeeper. Bottom line, basic accounting functions should be a snap for such a resource.
Your bookkeeper should easily be able to help you with some simple daily and/or weekly dynamic flash reports that can be filtered, sorted, and analyzed.
If you have a good CPA who thinks way beyond the tax return, they can help you translate the monthly financial statements. But do not expect a lot of support in terms of meaningful management information. Do not expect much support during tax time.
In this scenario, you do not need a financial consultant with 10-15 years of CFO experience. It’s overkill. Your bookkeeper and your business-centric external CPA will be all the financial support you need.
As You Grow, So Will Your Finance Team
Moving into the $3 to $10 million range, it’s time to add an accountant and preferably, an accounting manager. As you are starting to experience some ceilings of complexity both operationally and financially, the ideal candidate should have the following:
- an accounting degree,
- experience preferably from a mid-sized CPA firm or,
- private industry experience,
- strong business acumen, and
- ability to simplify the complex in language that’s easy to digest
The accountant or accounting manager will oversee the bookkeeping function but will also help with financial analysis which was previously performed by the CEO. The accountant should have a good understanding of all aspects of the banking relationship and should understand the basics of risk management.
Somewhere between $10 and $20 million, hopefully, the growing business can finally afford to bring on a controller. Many controllers I work with are still involved in the nuts and bolts of day-to-day operations well beyond the walls of finance and accounting. I was fortunate in that regard during my W-2 days.
As a former controller, I never did journal entries and was never involved in the daily accounting activities. Instead, I coached and mentored my team. I set the bar, and they delivered. That meant my time was spent in other departments and working on acquisitions, financing, and major projects.
Accordingly, the controller should be working more at a strategic level. Planning and analysis is a must-have skill and one that is hard to master for accountants who prefer working with debits and credits.
The controller should be one of the consultants in the organization supporting the efforts of other members of senior management. That includes technology solutions, KPI (planning, reporting, and analysis), cost analysis, and helping with special projects.
Needless to say, this is a critical role requiring a strong vetting process once you start seeking applicants for controllership or director of accounting positions. I’ve seen business owners hire the wrong person because they got in a hurry and ended up regretting their decision.
Be patient and find that key person with at least 10 to 15 years of experience with either prior controller experience or a strong auditing background in public accounting. I would also look seriously at the candidate with 5 to 10 years of managerial experience working under a strong controller.
Why Do You Need a CFO?
Lack of confidence.
That’s the primary reason I’m hired. CEOs generally lack confidence in one or many of the key financial areas mentioned above.
If all accounting and finance functions can be performed flawlessly as previously mentioned, the CFO role becomes a nice-to-have, not a requirement.
I have never entered a CFO role where timely and meaningful financial information existed. Daily, weekly, or monthly metrics? None. Wobbly banking relationships? The norm. Poor working capital management? Ditto. Lack of strategic clarity? Check.
I learned early on that the role of CEO can be a lonely job. CEOs generally lack someone to talk to when times are hard. Senior management members can help, but sometimes the CEO just needs another greybeard to validate strategy, critical decisions, and people issues.
When lacking in confidence is not the driver for hiring a 1099 CFO or financial consultant, then the other reason is ongoing validation. “Mark what’s your perspective or point of view on this idea?” There’s a reason we’re sometimes called greybeards. When I’m in one of my satirical moods, I’ve often thought of changing my firm name from G3CFO to G3Greybeard.
More Importantly, You Need Process and Methodology
You can live without a CFO. You cannot be lacking in financial confidence. Building your financial confidence starts with a financial rhythm that allows you to know where you are and where you are headed from both a cash and bottom-line perspective. A process of continuous planning, reporting, and analysis is near the heart of your decision-making without relying solely on gut instincts.
I’ve spent years building systems and processes enabling business owners to build on their financial management systems along with the accounting and financial staff that support them. In these cases, they don’t need a so-called CFO. They need a performance-oriented expert to set up basic financial systems and processes to support the growing complexities of their businesses
Therefore, the better question to ask is not if you need a CFO. Instead, the question should be, “Do you possess the right amount of financial confidence to grow and manage your business?”