Once your company has achieved a certain level of success, there are hiring decisions that must be addressed to sustain and continue scalability into the future.
For most small and midsize companies, hiring a full-time CFO is not within in the planned budget, but it’s likely also unnecessary.
So how do you know when it’s the right time for your company to hire a CFO?
The benefits of a CFO
A CFO is the one who understands the economics of the business and will help the business owner better understand the finances concerning the health of their business. This insight alone makes having access to a CFO beneficial for any business owner, regardless of size.
CFOs also play a critical role within a company especially during periods of rapid growth. Because an inaccurate cash flow forecast can hurt a company, CFOs can provide a forecast to track cash and estimate the amount of money expected to flow in and out of your business. The cash flow forecast helps the business owner to see whether it’s running out of cash or needs to acquire new financing. The CFO will also be able to help raise capital if needed.
While the owner knows the business better than anyone else, a CFO can help provide the foundation that a business owner needs by helping him/her forecast. A CFO will be able to help account for things the owner may not think about when planning their projections. For instance, the CFO may have a better grasp of when the business needs to order more materials or purchase new equipment. They will also take into account payables and receivables (along with cash flow) and give the owner a more realistic vision of what should be happening to maximize profitability within the organization.
Without a CFO, your business may be experiencing lost opportunities while also having no idea where money is going.
Signs your company is ready to hire a CFO
There is no one-size fits-all answer or formula for organizations to use to determine whether or not it’s time to hire a CFO. However, there are several signs that help facilitate the decision to do so.
If your company is experiencing these three factors, it’s may be time for your company to consider hiring a CFO.
Your company is experiencing rapid growth
A fast-growing organization requires additional capital and financing. Hiring a CFO will ensure that the best financing option is chosen for the business. For options on how to fund your business, read this.
Your business is developing a new product or offering
Due to the increasingly competitive and quickly changing business environment, the role of CFO goes beyond finance. A CFO should also be an expert in market trends and have the ability to use customer-driven data to help identify new opportunities for your business, including the development of new products or offerings.
Also, unless the owner/CEO is fully present throughout the development and launch process, the CFO will make sure the organization has conducted thorough market research to support financial assumptions.
Profitability is not at the desirable level
The CFO should always be looking for ways to bring in more cash while finding ways to keep costs down. For example, he/she may implement new technologies or systems to improve productivity and efficiency. Improving productivity and efficiency will ultimately improve profitability.
Outsourcing a CFO vs hiring a full-time CFO
As with any executive role, one of the greatest things preventing organizations from hiring a CFO is cost. As of November 2017, the average cost of hiring a CFO was over $300,000 per year, excluding benefits, equity, or any other additional employee expenses. And for most small and midsize businesses, that price tag is as easy to swallow as the branch of a cactus.
Hiring an outsourced, or part-time CFO can benefit your organization by providing an outside perspective. That outside perspective can help the owner see alternative solutions internal employees may not have considered. An outsourced, fractional CFO may also be better apt to identifying weaknesses within the organization and assessing management effectiveness.
The CFO is in charge of the financial future of a business. Therefore, the process of hiring a CFO that is the best fit for your company can be lengthy and costly, especially for small and midsize companies without a lot of capital.
Signature Analytics provides fast-growing companies with part-time CFOs at a fraction of the cost of hiring a full-time internal CFO. To find out more about our fractional CFO services, contact us today.