When Should You Bring in a CFO?

In every business there comes a tipping point when change is needed to get to the next stage of growth. While as a company owner or CEO, you may be adept at running the day-to-day, at some point you may start to feel that you need to be more tuned into your finances.

Maybe you have a Controller or bookkeeper keeping transactions up-to-date so you can run reports for your banker from time to time. But what happens when transactions start to get more difficult to deal with or you need more insight into financial metrics that will drive strategic decisions? If the following situations sound familiar, it may be time to start thinking about hiring a Chief Financial Officer (CFO):

• You are growing fast and looking to acquire or attract new capital
• Investors or financiers are requesting more sophistication in reporting
• The company doesn’t have the internal capabilities to consistently (and accurately) close out the books every month
• The business is facing declining revenues, stagnant growth, or rising market competition that calls for someone to provide more strategic leadership and set out a direction and action plan
• You feel like you don’ have a full handle on the metrics and KPIs that ultimately drive the business and measure your progress

A company primed to take advantage of the next opportunity needs a leader at the helm of their financial house who can pull from industry experience, deep knowledge, and evidence-based insight to ruthlessly assess risk and give a forward-looking view to their team of decision makers.   

But what makes for a best-in-class CFO? Here are a few considerations. 

Roles and Responsibilities of a CFO

What does a CFO do for your business? A good Chief Financial Officer should ensure an organization is disciplined in keeping the books, providing accurate transactional reporting and financial statements where reliability and consistency are key. This is only one piece of the puzzle. InterimExecs RED Team’s Vic Datta, who has over 25 years of deep experience as an interim CFO calls this table stakes, saying that once the books are kept and there is stability in reporting and monthly financial statements, what often happens within a business is the realization that while maybe 5 or 10 different metrics once drove the business, they have moved way beyond that.

This is where the difference between a good and a great CFO comes into play. Today’s CFO must be strategic, not only being skilled in what Datta refers to as value preservation, but also expert in value creation. In this role, the CFO becomes an incredibly important resource, exploring everything from how to improve forecasting, to how to help the sales team better understand a process for pricing products, to ensuring an inventory system is in place for demand planning.  

Datta says that more companies are calling on CFOs to provide headlights to see around corners. “What you get is this need for sort of an athlete that looks at operations, that looks at finance, that looks at IT, and that also looks very numerate…sort of connect all those dots, and forecast performance as well as forecast basic sales and margins for the firm,” he says. 

What is an Interim or Fractional CFO?

A demand for this CFO athlete who can help companies transition through points of growth and transformation has been on the rise, and many organizations are looking to interim CFOs to lead the charge. An Interim CFO will help drive a transition process, directing and developing staff, assessing the structure in place and identifying what’s missing, and providing the support and financial strategy to the CEO or investors to drive the growth of the business or lead initiatives such as mergers and acquisitions or an ERP implementation.

That may culminate with hiring a permanent CFO replacement once the organization is stabilized and on the right track, or in some cases mentoring someone internally to step into the role. Oftentimes a CEO may like the full-time CFO, but feel they need further development to effectively lead the company into the future. An interim might be brought in to guide that CFO to a better position, a role Datta refers to as the “CFO whisperer.”

He adds that above all, an Interim CFO must be able to quickly transition their knowledge and expertise to the firm so the client doesn’t feel they’ve wasted any time. 

InterimExecs RED Team member, Mike Winer, who has completed over a dozen Interim CFO assignments for clients ranging from retail to manufacturing and healthcare, says that many companies call in an Interim CFO to draw on the versatility of someone who can get into the trenches, roll up their sleeves, and function as a troubleshooter and builder.

Early stage or small companies might have a Controller getting basic Quickbooks or Excel reports out, but once critical mass is achieved – oftentimes around the $15M revenue mark — complexity goes up and an outside CFO proves beneficial. Fractional CFOs are an option in these scenarios, where companies engage a CFO in an Executive-as-a-Service model, securing a portion of an executive’s time while still getting the full firepower of an expert CFO.

Financial Turnarounds & the Interim CFO

Within the last decade we have seen first the Great Recession and now pandemic and global economic shutdown. As CEOs, owners, and investors grapple with declining revenue and hard decisions, troubled situations also are ripe for help from an Interim CFO.

“You can’t survive without cash,” says Winer. “You have to identify the opportunities for cash infusion whether it be additional investment or typically liquidation of either assets or businesses” which he says can be a very, very long-term process and not a fun one. He adds that liquidating into a crisis market won’t get you very far, so as an Interim CFO he is looking at how to weather the storm, whether looking at leasebacks or other options that would free up cash.

Datta says the CFOs who have served time in operations, sales, distribution, or even legal, picking up different skills along the way are key in troubled scenarios. “We’re not just dealing with black swan events. We’re dealing with grey swan events,” he says. While no one saw COVID coming, on an everyday basis companies may be dealing with challenges like an industry spinning out of control.

“Folks that just work off of a basic set of financials…they obviously are going to suffer when a market downturn happens like this one or some event takes place, which takes the business sideways,” Datta says. This is where a CFO with the skill of looking forward is needed. “They understand business drivers, they understand not only their business, but they understand their customer’s business, and they understand their competitor’s business.”

Too often, the permanent team gets stuck working hard, but staying insular not looking out at where other companies are going to move or react to a strategy. An Interim CFO can be called on to provide outside expertise and perspective in addition to an understanding of how to use technology to slice and dice information as well as the value of a good forecast and 13-week cash flow to manage funds very carefully.

“A CFO who can provide the tram lines within which the company can work and provided broad enough so that they can work effectively…those CFOs are worth their weight in gold,” Datta says.