When Does a Company Need a CFO…

… and what is a CFO anyway?

The difference between a CFO and a controller can be blurry. We’ve seen controllers doing what we generally consider CFO work just as we’ve seen CFOs who function more as controllers. For the sake of discussion though, let’s assume the following:

  • A controller manages day-to-day functions of an accounting department like maintaining the books and records (directly or through staff under his or her supervision), analyzing historical data, and maintaining responsibility for the implementation of accounting principles and policies. Most controllers are degreed accountants and many are CPAs.
  • The CFO is an organization’s executive financial leader and is responsible for assessing financial and other data (e.g., from marketing, sales, and production), and turning that data into actionable information. CFOs should look to the future as much as the past and play a key part in any short- or long-term planning involving money … which is to say all of it. CFOs usually oversee financial and strategic planning, budgeting, compliance and internal controls, cash management practices and banking and investment relationships, corporate credit planning, and a company’s relationship with its outside auditors.

So when does a company need a CFO? Essentially, that question is really “When does a company need not just data, but actionable information to optimize its planning for its future?” Right from the beginning, but that doesn’t mean a company has to hire a high-powered full-time CFO before they open their doors. Many entrepreneurs and others have the skillset and experience to fill this role. Some controllers can do this to some point, and CFOs are often controllers who stepped up.

These approaches can work, but as a company grows it often reaches a point where the owner, controller, or others just don’t have the time or the job has gotten bigger than their experience. The company may be big enough to justify a full time CFO, or it may not.

In a conversation about jet skis and houseboats some years ago, a friend of mine told me “Always rent your toys.” It’s cheaper and you only pay for what you use. A company’s financial future is no toy, but outsourcing CFO or controller-level help can be a way to get the guidance a company needs without paying for more than it needs

A discussion thread titled “How does a small company know when it needs a CFO?”on LinkedIn’s CFO Network drew comments from CFOs and others. The consensus was that all companies need firm financial direction to chart – and stay – a solid course. Several noted that it may not always be practical to hire a CFO full time but that all companies benefit from solid CFO-level direction at key junctures: planning growth and expansion, key marketing or production initiatives, sale or purchase of a business, annual and long-term budgeting and planning, strategic planning, and just regular reviews of plans and progress.

Many individuals and a few firms offer interim/outsource CFO or controller services; we’re one of them. Whoever you choose, make sure they have the depth of experience and the resources you need. We’re biased, but a rock-solid individual backed by a rock-solid firm can offer the best of both.

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