IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog has been provided by Art Zylstra of CFO Business Partner (www. cfobusinesspartner.com)
Is My Business Ready for a CFO?
Owners of growing businesses are often confronted with this question, or some subset of the question. When is the right time to hire a CFO? Can I afford a CFO? Do I trust someone with confidential financial information? I understand numbers, why do I need a CFO to tell me what I already know? Can’t my CPA give me the same information? Doesn’t a CFO just add to my administrative costs?
Business owners and CEO’s of small privately-held businesses are faced with multiple demands on their time. They are tasked with developing new markets, growing the existing market, keeping on top of changing technology, creating a healthy internal culture, communicating a consistent brand to the marketplace, developing and maintaining customer relations, making major financial decisions, developing business strategies, reporting financial results. One might think that function as the CFO would be a natural role for the business owner to take on, and that it really is not as critical of a function to outsource or delegate.
No matter how small, any company can benefit from having a finance chief to help organize its finances and track its performance. But the timing of hiring a CFO can be a big decision for a company. Hire a CFO too early in the growth cycle of the business and it may tie up necessary cash flow to continue to grow. Waiting too long to hire a CFO may create lost opportunities for growth, profitability and obtaining capital.
The following are some factors to consider when making the decision to hire a CFO.
1. You lack detailed financial data that’s critical to making sound business decisions. An important internal tipping point is when information that helps the business make timely and important decisions is not being prepared. A company lives or dies on its flow of information. Owners and managers need key data regarding cash flow, working capital, and other financial matters presented accurately in sensible, digestible form as a foundation for making timely, important decisions. If you’re not getting that data when you need it, consider expanding your team to include someone capable of preparing it. A CFO can collect, analyze, interpret, and disseminate details about your business’s costs, revenues, and capital, as well as your planning options for economic, industry, tax, and regulatory matters.
2. Your company is growing faster than its financial system can manage. Growth requires an expansion of automated systems to handle the growth, and additional capital and/or financing to finance the growth. A CFO is best suited to handle rapidly increasing growth due to the complexity involved. If you’re making scores of products for hundreds of clients, you’re obviously looking at a more complex operation–one more likely to require the services of a finance executive. In addition, growth usually brings new risks to be managed not only with insurance, but with proper approaches to threats that may arise from regulatory, environmental, and human capital factors. A CFO can take hold of the situation and install procedures and systems to manage your company’s finances effectively.
3. No one is closely watching your costs. Every dollar saved supports your company’s bottom line, so it can be tremendously beneficial to have top-level talent focused on cost issues. Of course, a CFO doesn’t just go around turning off lights in unused offices and buying cheaper paper for the copier. He or she understands the importance of proactive planning on such matters as staffing, make-or-buy decisions, and strategic partnering.
4. Bankers, suppliers, shareholders, merger & acquisition partners, and even customers are frustrated by the absence of a CFO. Whenever customers, suppliers, investors, or others feel stifled by the absence of a CFO, you’re limiting your future growth potential. A CFO is better equipped than other C-suite executives to feed and care for people like bankers and prospective investors. He or she is also trained to evaluate M&A offers and opportunities. Even when financial and regulatory due diligence gets outsourced to a specialized firm, it often takes a CFO to interpret the findings and craft appropriate terms of a deal.
Many business owners are looking for specific revenue numbers or employee head counts to determine whether it is necessary to hire a CFO. A CFO in a growth-oriented small business must be hands-on. Being in the weeds is critical to controlling growth and communicating results to those with money at stake. Such as the owners or shareholders, banks, insurance companies and – let’s not forget – the employees. In today’s world of contract, as-needed, CFOs, the size of a business isn’t nearly as an important factor as it once was. Today you are able to hire a contract CFO for a fraction of the cost of a full-time CFO, with a significant positive impact on your company. The question now is, am I able to find the right person for the right price, who can accomplish what the company needs?
If you have questions related to any component of this article, Art Zylstra would welcome the opportunity to provide additional information. Mr. Zylstra can be reached at (425) 931-3430 or ArtZ@cfobusinesspartner.com.