Of the many demands growth brings to a business, the aspect most owners are unprepared for is the demand on the financial infrastructure of the business to support the business growth. This is especially the case for entrepreneurs and small businesses where owners face multiple demands such as customer management, deploying strategic initiatives and dealing with an increasingly complex world of labor law and regulatory compliance. Feeling the pain of being pulled in too many directions, owners often attempt to address the financial demands by seeking to hire a CFO, believing that their problems will be solved.
We observe this frequently and it underscores how misguided many are as to what a CFO brings to the table. Often times, CFO’s are hired for the cache value; the perception of having a CFO in the business, rather than for the deeper knowledge of what it takes to leverage the value of a CFO, let alone afford one.
For an expert’s opinion on this, I asked Wayne Marschall, Vice President and Chief Financial Officer of The Stoller Group to weigh in on this topic. Not only has Wayne served in multiple executive leadership roles as a CFO for both large and small companies, Wayne is also serving as the 2014 Portland Chapter President for Financial Executives International (www.financialexecutives.org), a financial industry association focused on the professional development of financial executives.
“The inflection point for a business being able to leverage the value a CFO brings to the table is around $50 million [in revenues],” Marschall explained. “That is when a business begins to transition from a controller or bookkeeper mentality, which is primarily looking in the rear view mirror, to one that is forwardlooking and leverages the business intelligence in the strategy and planning. A CFO can bring the sophistication and nuance to these processes to scale the business in an effective way.”
Wayne’s points are well taken. Does it mean, however, that the services of a CFO are out of reach for small businesses that have not reached that inflection point? No. There are many qualified contract CFO’s that provide excellent guidance to small organizations on a contract basis. The clarification that we will make here is that often the CFO-for-hire is no more than an accountant turned contract CFO, providing just good accounting practices. While these services may be needed, they are not offering the value of a true CFO. In order to prepare the business for leveraging the value and investment of a CFO, (full time or contract) the following should be in place and are what Wayne refers to as the building blocks of an effective financial infrastructure:
1. Solid accounting processes – Accounting software and processes that generate financial reporting that has integrity and provides the owner with business intelligence, i.e. the ability to drill down at a line item level and identify what the specific expense, income or balance sheet item it is and what drove the number. Included in this is good history so that the numbers tell a story over time of what the business has been doing.
2. Competent talent – For a small growing business, this can often be the most challenging aspect of building a financial team. Legacy employees often do not have the skill sets necessary to meet the needs of a scaling business. Whether through training and development or new personnel; however it is accomplished, talent is required to drive the systems.
3. A planning and forecasting process – This is a key pivot point for the business in beginning to look forward in a proactive way rather than continuing to react and is the key difference between the activities of an accountant and a CFO. Further, ensuring the budgeting and business planning is aligned with the business strategy creates the efficiency in the systems needed such that the intelligence can be deployed nimbly. This along with sound business strategy creates a holistic business process that is a force to be reckoned with, no matter the market.
"The key question that needs to be asked,” Marschall reiterated, “is do I have the people, processes and tools to get me there?” The benefits of a CFO are best utilized when these building blocks are in place and functioning. Otherwise the business will not leverage the talents and expense of bringing a CFO to the table.