Should You Be Your Business’ Own Chief Financial Officer (CFO)?

Whether your business is still in the start-up phase, or if its growth seems a bit out of control, do you understand the financial side as well as you should? You may know everything about your products or services — and even what you need to do to bring customers to your doors. But, numbers and formulas can often make or break your ability to succeed.

Frankly, deciding who should take control over financial decisions is a tricky and somewhat frightening question. At one end of the equation, you probably trust yourself more than anyone else. At the opposite end, a brilliant financial manager might create a perfect counterpoint to your creative temptations.

Read on for some things to consider before making this important decision:

All Business Owners Should Learn the Financial Basics

If business numbers give you the willies, don’t plan on a CFO to save you from them. Your CFO’s advice is based on numbers. As head honcho, your decisions must be based on the numbers combined with industry knowledge and instinct.

Almost by definition, a CFO is somewhat risk-averse and will probably advise against making an important major expenditure when income and expenses are nearly equal. If you understand your numbers and your customer base, however, you might recognize that your customers will accept higher price points that would increase positive cash flow. By combining the numbers with other types of knowledge, you can make that purchase more affordable — and substantially increase future company growth. But that only works when you understand the intricate workings of the numbers.

It never hurts to enroll in a basic online business accounting course. Coursera offers a range of courses for free, but an online search will reveal a wealth of other options. For additional guidance, check out the 5 Important Business Numbers You Need to Know from QuickBooks. Also, The 7 Financial Numbers Every Business Owner Should Know from American Express offers practical advice.

Start by getting familiar with the numbers that are recorded in the accounting software that performs your daily bookkeeping tasks and creates your financial reports. Even if you don’t use the software yourself, you need to be intimately familiar with the numbers before you can make sound business decisions. In fact, you need this knowledge just to figure out when you can to bring in a CFO!

Creativity and Dollars Do Not Always Mix

No matter how much financial knowledge you have, you still have to ask yourself if you are level-headed or somewhat impulsive. A brutally-honest answer to this question might be a key factor when deciding whether your company’s purse strings are safe solely in your hands. Creative entrepreneurial decisions are essential to growing a business, as long as they are properly tempered by a few facts and figures.

I once worked for a rapidly growing software and consulting company run by a creative CEO and a no-nonsense CFO. Unfortunately, that CFO resigned. Left to his own devices (which included the old adage, you have to spend money to make money), the CEO started buying cherry wood conference tables and hiring more high-priced engineers than he needed to meet existing demands. I’ll spare you the details, but six months later, the company folded.

Unless you are prepared to make financial decisions with discipline, practicality and forethought — or unless partners are available (and powerful enough) to play this role — a CFO might be just what you need to stay on the road to success.

Affordability is a Major Issue

When it comes to practicality, of course, you have to ask if you can really afford to take on another executive salary (complete with perks and benefits). Never forget that you have other alternatives to hiring a CFO.

We’ve already talked about how partners can reign in impractical decisions (and encourage good choices). You can  also put together an advisory board to help with many decisions. As long as it includes someone with strong finance skills, the board will keep you grounded..

And, don’t forget about your business banker. If you make the effort to build a good relationship with your banker (who has a natural vested interested in your financial success), then you have a great advisory resource. Before making a major purchase decision, make sure that your banker has accurate financials, and then run major purchase ideas through someone you trust at the bank.

Another excellent option: an Outsourced CFO. This is a simple route for growing businesses who need the expertise and strategic support of a CFO, but can’t justify (financially or otherwise) filling another executive salary position. Outsourcing CFO responsibilities on a project by project basis is certainly one way to keep your financial ducks in a row, and just pay as you go.

The CFO Mindset can be Too Limiting

Now let’s look at the opposite perspective. If you are blessed with both good money sense (a degree in Finance or an MBA wouldn’t hurt) and creative thought, then you may be better off without Ebenezer Scrooge preventing you from taking the financial risks needed to move toward the top of your industry.

Even if you don’t hire a CFO for your business, however, working in a vacuum makes no sense, either. Before you run out to purchase that new $10,000 widget-maker — or buy out the print shop that publishes your annual reports — please work the decision through with someone else. Talk to your business partners (if you have any), or discuss the pros and cons with your accountant.

The CEO/CFO Relationship Needs to be a Symbiotic Partnership

The right relationship allows you to let your creative side soar without bothering too much about the debits and credits. A CFO will help you recognize the difference between practical and impractical before you lose your shirt due to hasty implementation.

As CEO, you are ultimately responsible for developing the company goals, while the CFO is accountable for ensuring that funds are available to meet those goals. This is definitely an oversimplification of both roles, but it illustrates the importance of having a good working relationship.

If you decide to hire a CFO, the resume is very important, but personality traits and compatibility can make or break the bond that you need. Look for someone who can effectively offset your impulsive side without breaking the spirit that drives your entrepreneurial mindset. You need the perfect amount of trust that encourages both sides to take “no” for an answer while recognizing when “yes” might be a worthy risk to take.

Financial Decisions Require a Balance Between Creative and Practical

Every major business decision requires a balance between the creative and the practical. Business owners that do not have a natural affinity for this balance may want to bring in someone who can reign in some decisions or find ways to convert the impractical into practical. Just remember that hiring a CFO is a spending decision, as well. Unless you understand your business’ financial status, you may not know if you can afford to make this substantial hiring decision.

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2 of 2 Comments see all

  1. Carol Slott

    Good points, Kevin. Thanks!

  2. Kevin

    Act as a right hand and sounding board to you as you grow the business. CFOs have a broad view of your whole business and can help advise across all areas. Help you raise the capital needed to grow. From equity to debt to ensure timely collection of revenue, CFOs play a key role in keeping your business fully funded.

2 Comments

  1. Kevin

    Act as a right hand and sounding board to you as you grow the business. CFOs have a broad view of your whole business and can help advise across all areas. Help you raise the capital needed to grow. From equity to debt to ensure timely collection of revenue, CFOs play a key role in keeping your business fully funded.

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