Why Every Business Owner Should Have A CFO On Their Team

Many of the business owners that I come into contact with are ‘successful’ while not having a CFO (Chief Financial Officer) on their teams:

  • They are engineers, builders, medical professionals, attorneys, software developers, marketers, business coaches, etc., and are very good at what they do
  • Their businesses have ‘been in business’ for several years, often due to the owners’ hard work, sacrifice and reinvestment in the business
  • They have dedicated employees, many of whom have been with the owner/business for several years. Many of these employees were hired due to having some personal connection with the owner/business and not necessarily because of their skills
  • Their businesses are growing (usually reactively rather than proactively)
  • The businesses support their chosen lifestyles
  • The businesses have cash in the bank
  • Their businesses generate positive net income (albeit in the 2-3 percent net margin range)

canstockphoto5287092The CFO works with the business owner and management team to maximize the business’ cash flow in the short term, profitability in the medium term and value in the long term.

This ‘success’ is adequate until:

  • The business grows to a point that the owner can no longer run the business ‘in their head’ and by ‘gut feel’
  • The owner becomes dissatisfied with the business’ current performance, and knows that their business can grow to a higher level
  • The owner wants to spend more time outside of the business (e.g., time with family, vacation time, etc.)
  • The owner has an opportunity to take on a significant amount of growth (e.g., new customer(s), new product(s) and/or service(s), buying an existing business, etc.)
  • The owner loses a significant amount of business or the company is threatened
  • The owner begins to consider exiting the business

At this point the owner’s ‘success’ isn’t what it should be:

  • The owner, while very good at what they do, is often not skilled in business best practices
  • The owner is ‘too busy’ doing to think and lead strategically
  • The business lacks the financial skills needed for it to reach the next level of growth
  • The business leaks cash due to poor and reactive management (i.e., what should be an above 10 percent net margin is only a 2-3 percent net margin)
  • Business processes have not been documented, hindering the company’s scalability
  • Information systems have not been fully developed and implemented, resulting in the owner lacking the planning and management information needed to make sound, proactive business decisions. Many business functions are inefficient
  • The owner has not developed a management team to help operate the business, and therefore has difficulty taking time away from the business
  • The employees, while dedicated, often lack the skills needed by the business
  • The owner lacks personal investment wealth because they have reinvested most of the business’ profits back into the business. The business is therefore the owner’s largest asset, and its sale is solely responsible for achieving the owner’s desired wealth at exit
  • Potential buyers discount the company’s value or walk away due to inaccurate financial information, the owner too involved in daily operations, lack of documented processes and procedures, etc.

The CFO’s Role

The CFO provides expertise that the accounting/bookkeeping team (some of whom are likely not trained as accountants/bookkeepers) will not have, and that is necessary for business owners to be truly successful. This expertise allows the CFO to:

  • Maximize the business’ cash flow in the short term, profitability in the medium term and value in the long term
  • Work hand-in-hand with the owner and management team to develop and implement strategic, financial and operational plans to increase the profitability and growth of the business through proactive decision making
  • Ensure accurate and timely financial reporting
  • Develop and implement financial budgets and forecasts
  • Develop and implement management reporting and dashboards
  • Develop and implement operational metrics
  • Analyze performance trends
  • Develop and document supporting processes and procedures
  • Manage and mentor accounting/bookkeeping staff
  • Lead staff in better utilizing existing operations and/or accounting software, and select and implement operations and/or accounting software if needed
  • Obtain or restructure financing
  • Assist the owner in developing/hiring the company’s management team and staff
  • Prepare for a business transition/exit or acquisition
  • Provide peer support to the owner

Business owners benefit from working with a CFO through:

  • Increased cash flow, profitability and value resulting from implementation of financial best practices. The increase in cash flow and profitability, along with active cash flow management and forecasting, may allow the owner to safely take cash out of the business to personally invest
  • Access to the financial skills needed for the business to reach the next level of growth. Other skills needed by the business are also in place
  • Development of a management team that allows the owner to focus on his/her strengths, spend more time with customers and to take time away from the business (e.g., go on vacation)
  • Strategic, financial and operational plans are in place defining where the business is going and how it’s going to get there. Owner/managers understand and are focused on the stated company goals and are accountable for achieving those goals
  • Budgets and forecasts are in place to help owner/managers control operations, manage cash flow and make informed decisions. The business is managed proactively rather than reactively
  • Documented business processes allow the business to more easily scale
  • Implemented information systems provide management information and dashboards, allowing owner/managers to monitor the business at a glance both on- and off-site
  • The company is profitable and healthy, attracting multiple suitors in a purchase environment thereby maximizing the value of the company at exit, and achieving the owner’s exit goals
  • The company is more likely to successfully pass buyers’ due diligence

The Benefits of An As-Needed CFO

While the benefits of having a CFO are clear, the size and complexity of the business may not support the cost of a full-time, employee CFO. Many owners therefore hire an as-needed CFO for the number of hours per week or month that they need, often on a long-term basis. In addition to the cost benefit and the expertise provided, an as-needed CFO brings outside perspective and experience gained from working with many different companies.

Please contact me at (206) 498-5006 or vancampbell@b2bcfo.com to start a conversation on how I can help you or a business owner you know through being an as-needed CFO on your/their team.

photo credit: Portrait of a female executive via photopin (license)

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