It’s nice to think you can do everything on your own. But when it comes to running your business, there are certain tasks and responsibilities you will want to give to a qualified advisor. None of these roles could be more important than the chief financial officer (CFO). CFO services are vital to any business’s growth.
This article will explain what a CFO does. Many of these services a business owner tries to handle themselves or tries to lean on whatever financial officers are closest to hand. But a bookkeeper, accountant, or controller is not a CFO. Leaving CFO tasks to someone without experience and training as a CFO, or even worse–simply ignoring them, is a risk that will come back to bite you eventually.
This guide will explain everything you need to know about CFO services. Contrary to popular belief, CFOs are not only for large corporations. Every business needs CFO services, and there is a CFO solution for businesses of any size, even yours.
What Does a CFO Do?
Many business owners forgo the CFO role because they simply don’t know what a CFO does. The title, chief financial officer, suggests that they have something to do with money, but it isn’t especially descriptive.
Don’t worry if you’re one of these business owners who is fuzzy on CFO services. What you’ll find is that you’ve been handling many of the tasks largely through trial and error and gut instinct. What you’ll also learn is that there are proven methods for these tasks that can take the guesswork out of managing your business.
One of the great challenges business owners face is that they don’t know how to measure their business’s health. Sure there are periods when they know they’re getting more sales or fewer sales, but they don’t really know what’s happening “under the hood.”
A CFO can create financial reports that simplify the bookkeeper or accountant numbers into informative metrics that a business owner can act upon. With good financial reporting comes the ability to do good financial planning.
Financial forecasting is an often overlooked aspect of business management. Often business owners estimate their future finances with a guess based on how they’re feeling about the current health of their business.
Feelings might fade, but numbers don’t lie. A CFO can wade through the muck of your bookkeeping to generate forecasts about future finances based on market conditions and a business’s past performance on paper (not just in your head).
With rigorous forecasts, a business owner is better positioned not only for financial planning but also for seeking funding. Investors and loan officers want to know about your projections for the future of your business, and being able to explain how you arrived at your numbers makes an investment in your business look more attractive.
A good business owner compares their business not only to its past performance but also to its competitors. There are standards in any industry. Part of a CFO’s job is to investigate your industry to determine how best to rate your business’s performance.
In any industry, there are standards for things like overhead, rate of profit, return customers, etc. A CFO explores these aspects of your business to tell you where a business is doing well and where it is underperforming.
With financial reports, forecasts, and competitor analysis, a CFO can help you interpret your business’s fundamentals to plan for the future. Whether you have aspirations to go public, be bought out, or just scale operations without having to scale your workload, a CFO can chart a path to your goals.
A CFO can take stock of a business’s fundamentals to determine areas that you will need to work on in order to get where you want to be. They can help set a realistic timetable for these goals and establish intermediary goals along the way to ensure that you are on the way to your dream business.
Credit: Andrea Piacquadio
When to Hire a CFO?
One of the unfortunate things about CFO services is that the business owners that typically need them the most don’t even know what a CFO does. Now that you have a better sense of that, how do you know if you need a CFO?
There are a number of telltale signs that your business is in need of CFO services. Now that you know what a CFO does, you can probably already guess at some of them. In general, where your business doesn’t have established processes that impact your bottom line, a CFO can help.
Your Financial Decisions Are Guesses
The biggest sign that a business owner needs a CFO is that they make financial decisions based on gut instinct and intuition. Yes, you are probably an intelligent person. But being smart is no substitute for having a rigorous analysis of your financial position
A CFO can help guide your decision making process by backing it with hard data. What most business owners find is that financial decisions are far easier and less nerve wracking with solid numbers to back them up.
You Don’t Know What Metrics You Should Be Tracking
Some business owners know better than to run their business on guesses which are often guided by emotion rather than reason. But even knowing that they should back up their decisions with data, they don’t know what numbers to look at.
A CFO can tell you how to measure your business’s health both in general and as a part of your particular industry. While every industry is unique in what makes for an efficient business, there are some metrics that every business will want to track. A CFO will know what these are, what your goals should be, and how best to reach them.
You Don’t Have a Financial Plan
Many business owners fly by the seat of their pants because that’s what they think they’re supposed to do. We’ve all seen movies about startups that grew up with absolutely chaotic operations.
But in the real world, most businesses don’t grow based on entrepreneurial charisma and dramatic financial decisions. Making a bunch of risky bets and hoping everything works out usually ends up not working out. A CFO can help you establish business processes to ensure that your business is on track for growth and profitability.
Your Growth Has Plateaued
In many cases a business owner does a great job on their own, but come to a point where they simply don’t know how to grow their business past a certain point. Often, this is because there are industry practices outside of the skillset of the business owner.
A CFO can push your business past its lull in growth because they’ve done it before. Sometimes it means cleaning up your records. Other times it may mean streamlining your operations. In some cases, it could mean currying investment for new equipment. Whatever it is, a CFO can identify your business’s areas for improvement and put you on a path to grow again.
You Don’t Know What the Future Will Hold
Some business owners prefer to live in the moment. As far as they are concerned, if their books are balanced and their sales are consistent, they don’t need to worry about the future. This reasoning may work well for a time, but it will all unravel when conditions change.
A CFO can help you determine what your future holds, allowing you to take action now to ensure future success. Whether that means being aware of changing market conditions, developing industry trends, or new ways of doing business, your CFO will ensure your business is prepared for what the future holds.
How to Hire a CFO
One of the challenges of hiring a CFO is that a business owner needs to know a fair bit about what a CFO does in order to hire the right one. Often, business owners don’t know what to look for in a CFO because they don’t know what makes a good CFO.
Aligned with Your Goals
First and foremost a CFO has to be a good fit for your business. If you’re looking to run a neighborhood mom-and-pop shop that can earn you income when you retire, you don’t want a CFO that deals primarily with startups or large corporations.
It’s important that your CFO be aligned with your goals whatever they are. You want to find a CFO that not only thinks they can meet your goals but has a track record of doing so.
One of the benefits of hiring a CFO is capitalizing on the experience they bring to the table. That’s why you’ll want a CFO that’s not only well-versed in your industry, but also has experience with other industries.
A CFO with diverse experience not only brings knowledge of best practices for your industry, but can also think outside the box, bringing in solutions from other industries. This may mean different sales models or tactics, different performance measurements, or different forecasting techniques.
A prospective CFO should be able to tell you not just what they can do for your business, but also what proven processes they will use to get you there. A prospective CFO should be able to take stock of your business’s situation and make concrete recommendations for how to improve your business.
Obviously, when you hire a CFO the person you are interviewing is not going to be able or willing to give you a full financial plan for your business. But they should be able to tell you what processes they would bring to your businesses and show you successful businesses they’ve worked for in the past that have adopted those processes.
Record of Success
This one is probably obvious, but you want a CFO that has a track record of improving the businesses they work for. In addition to researching their past employers yourself, you should ask a prospective CFO what they feel they brought to their past employers to make them successful.
A CFO should not only be successful in creating positive outcomes, but also have a solid idea of what worked and why. It’s important that your CFO not only has a record of success, but the ability to reproduce it.
One aspect that’s often overlooked in hiring a CFO is making sure that they’re a good fit for the company culture. A CFO will be responsible for a large part of your business operations and may oversee numerous staff members. Whoever ends up in that role needs to be able to work with your team rather than against them.
Part of determining how a CFO would fit in your company is defining what your company culture is like. How do you handle missed deadlines? How is work assigned within your company? How much oversight do managers typically have over their subordinates? Answering these questions and others will help determine whether a prospective CFO can match your style.
Alternatives to a Full Time CFO
We’ll come right out and say it. A full time CFO is expensive–often six figures expensive. Plenty of businesses simply can’t afford that expense. Because of this, there are many alternatives business owners turn to, some of which work better than others.
Do It Yourself
Many times, a business owner who knows they need a CFO will still attempt to handle CFO services themselves anyway. Often times, they can get by on a combination of amateur research and luck.
Still, going without a CFO is a big risk for a business owner. Incorrect financial projections or poorly planned decisions can be extremely costly with irreversible implications.
Lean On Your Other Financial Officers
Another route business owners take is to treat someone in their organization who deals with finances like a CFO. This could be the controller (bad idea), CPA (worse idea), or bookkeeper (worst idea).
While professionals in these roles may have some acumen when it comes to finances, they are not trained in the planning skills that a CFO possesses. As a result, what a business owner often gets is a guess that’s as good as their own.
Outsourced CFO Services
One option many business owners don’t know about is outsourced CFO services. Also called part-time CFO services and fractional CFO services, outsourced CFO services rely on an outside company to provide a CFO to your company on a part-time basis.
According to Forbes, an outsourced CFO is “a cost-effective way to get the services that you need, and you can create a tailored plan to your specific business needs.”
Many outsourced CFO service companies also offer virtual CFO services, allowing you to take advantage of the wisdom of a CFO without the expense of getting them to the office. A virtual CFO will conduct their business with you via video conference and send documents and reports electronically.
For businesses that can’t afford a full-time CFO (and even for those that can) an outsourced CFO is a great alternative. And it certainly beats trying to do it yourself or rely on someone underqualified for a CFO role.
Other Financial Positions to Consider
A CFO handles crucial financial services, but they don’t handle everything. In order to get the most out of your CFO, it’s important that you hire the right people to support them.
CFO vs. Controller
Another top financial officer often found in a business is the controller. A controller reports directly to the CFO in most businesses and is responsible for managing the accounting and legally required financial reporting of a business.
While a CFO often possesses the skills to handle controller work, that kind of work is a drain on the CFO’s time and is best handled by a dedicated team member. A CFO should be focused on big picture financial planning, not nitty gritty accounting and generating boilerplate financial statements.
CFO vs. Accountant
A financial role that’s outsourced more frequently than CFO services is an accountant. Unlike a CFO or controller, an accountant is not an executive role. The accountant is responsible for preparing and auditing financial statements and preparing tax returns.
The tasks that an accountant handles would bog down a CFO in paperwork that would distract from managing the business’s financial future. Conversely, an accountant may be a stepping stone on a career path towards becoming a CFO, but they are by no means prepared to take on the role of a CFO.
CFO vs. Bookkeeper
A bookkeeper keeps a record of the day to day financial transactions of your business. The bookkeeper, as the name suggests, keeps your books, ensuring that your financial records are up to date.
A bookkeeper is the first step of financial information making it from the transactions themselves, through the bookkeeper, the accountant, and the controller to the CFO. Bookkeeping requires the least training because it consists merely of recording financial transactions in a running ledger. You definitely don’t want to lean on your bookkeeper for CFO services.
How to Get the Most Out of Your CFO
Beyond ensuring that you have the correct people to support your CFO, there are other practices you will need to adopt in order to get value from your CFO. Whether you have a full-time CFO or an outsourced CFO, you will need a degree of discipline to ensure a fruitful working relationship.
Find Someone Experienced in Your Industry
While some CFOs would like you to believe a CFO is a CFO, the best CFO for your business will be someone who has experience and success in your industry. Every industry comes with a unique set of challenges and your CFO needs to be prepared for them with proven processes and tools to meet them.
Keep Your Finances Organized
A CFO can give you the tools and direction necessary for keeping your books organized, but it is incumbent upon you to ensure that they are useful for your CFO. This may mean adopting accounting software and being more diligent about keeping track of documents.
Be Patient With Major Business Decisions
It’s nice to think that you are a quick thinking genius, but even the most successful business owners–perhaps especially the most successful business owners–need time to mull over major business decisions. If you don’t give your CFO an opportunity to analyze and recommend on your business decisions, you can’t get any value from having a CFO.
Sometimes your CFO may tell you things you may not want to hear: a promotion idea is unrealistic, a new product has a market that’s already saturated, you need to cut some staff, etc. While business decisions ultimately come down to you, rejecting the advice of your CFO entirely defeats the purpose of having one in the first place.
Credit: Kampus Production
Why Consider an Outsourced CFO?
With outsourced CFO services, a CFO is within reach for even the smallest of businesses. Even larger businesses can find advantages of an outsourced CFO over a traditional full-time CFO.
The chief benefit of outsourced CFO services is the savings. With less frequent engagements than a full-time CFO, a business can economize on contact time.
Some CFO services providers even offer flexible contracts that allow you to scale up or down contact time in accordance with your needs. This can come in handy when undergoing a major business change such as an expansion or navigating layoffs.
Rather than work full-time for one client, an outsourced CFO provides services to numerous businesses at once. This means that they are constantly getting a diversity of new experience that they can bring to your business.
Some CFO service providers even specialize in particular industries. In such a case, you can often get a better sense of the state of your industry from them than you can by reading PR newswires and industry publications.
Because an outsourced CFO is not an employee within your organization, they are more at liberty to tell you things how they are. Because their contact time with you is limited and their engagement with other staff is minimal, they avoid the office politics which might cloud their judgment.
Also, because they manage the financial health of many businesses in addition to yours, they can offer you a better perspective on where your business ought to be in comparison to competitors.
Why Choose Michigan CFO Associates?
Michigan CFO Associates is the best choice to outsource CFO services for small to medium businesses in the United States. We can work on site with businesses local to the Detroit metro area and offer virtual CFO services to businesses elsewhere in the country.
Our CFOs work as a team to provide you expert business advice, unlike some of our competitors who outsource a loose group of independent contractors. Without long term contracts or surprise fees, we ensure that your CFO engagement stays within your expectations and your budget. And with our flexible pricing model, you can be sure that you have your CFO when you need them and can reduce contact hours when you don’t.
When you join with Michigan CFO Associates we will select a CFO whose experience and training is the best fit for your business. Our team pride itself on our deep experience in the manufacturing industry as well as our broad experience in other industries.
Ready to get started? Great! Contact us today, and we can work with you to design the CFO solution your business needs.
Featured Photo Credit: Monstera