It's critical to have a financial lead and infrastructure that supports the size, goals, and challenges your business is facing. Controller? Bookkeeper? Accounting Manager? Financial Analyst? CFO? What’s the difference? Should you hire internally or outsource externally? Full-time? Part-time?
To answer these questions, and because all organizations have different financial needs, it’s important to understand the differences among roles and match them to the needs of your business, currently, and in the future. Broadly speaking, financial roles can be separated into two simple categories: backward and forward looking.
Backward looking roles (such as bookkeepers, accounting managers, staff accountants and controllers) emphasize where a company has been. Think accurate record keeping, financial statement preparation, and compliance oversight with minimal focus on strategy, vision, and financial analysis.
At a minimum, companies need an external CPA who organizes and prepares financial transactions for tax purposes. As a company grows they can hire a person or team involved in the day-to-day accounting function of the firm and then expand to a senior manager or controller. A controller can not only perform day-to-day accounting functions or supervise bookkeeping staff, but they can also perform many different internal functions from top to bottom
For most stable, profitable, small to medium sized businesses that have no foreseeable plans or goals for material changes, a controller or accounting manager is the most senior resource they’ll need.
If, however, your company is undergoing, or is soon to undergo, material changes, needs strategic financial direction, financial performance improvement, and / or needs more horsepower executing the company’s vision, forward looking finance functions, and the team members who can drive them, are critical for your business.
CFOs, Financial Analysts, and Financial Planning and Analysis (FP&A) roles work to answer critical questions like what are the company’s strategic goals and how do we get there? What will the company’s next month, quarter, or year look like? How can the capital structure be improved? What steps do we need to take to become more efficient and profitable?
Making the investment in a CFO is a big step but you may be ready if:
1. You’re a “do everything” CEO. If you’re managing all aspects of your organization’s strategic direction and vision, CFO’s and CEO’s are a great pair. They work closely together as trusted partners in critical decisions on the future direction of the organization, with each contributing different viewpoints.
2. Detailed budgeting, planning and forecasting are needed. A CFO can create complex financial models that forecast various outcomes and scenarios to help with critical strategic decisions and potential future impacts. They can then analyze their forecasts to ensure the company is on the right path with the right goals that match the business.
3. Financial analysis of historical performance is needed. Financial statements are just organized numbers until someone is strategically analyzing them to make improvements in the future. If there are aspects of your history you don’t like, but aren't sure of the root cause, you're likely doomed to repeat them.
4. Key Performance Indicators (“KPIs”) need to be developed. A company needs financial goals, and the CFO can establish them and help ensure targets are being met. If KPIs are being missed, they can help identify the drivers that will get the company back on track.
5. You need help growing / scaling, profitably. A CFO can help your organization grow in a more cost-effective way by analyzing and forecasting scenarios and their impacts to the bottom line.
6. You need support talking to outside investors. If you have investors of equity and / or debt on your cap table, the CFO can help manage these relationships, giving the CEO the ability to focus elsewhere. If your company wants to make changes to the capital structure, a CFO can help you understand various options and help set and implement a path forward.
Bottom line
Steve Jobs once said, “There’s an old Wayne Gretzky quote that I Iove. I skate to where the puck is going to be, not to where it has been. And we’ve always tried to do that at Apple”.
If your business is at a stage where determining where the puck will be and how to get there in the best way possible is important, a CFO is a great option. While full-time CFO’s may seem like a daunting expense for most small and medium sized businesses, a part-time CFO is a cost-effective way to leverage the benefits the role will bring to an organization.