You Just Might Need a CFO

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CFOIf you’re wondering whether or not your small business is too small to hire a Chief Financial Officer the short answer is: “Probably.”

If you’re wondering whether or not your business may have outgrown what your accountant can do for you the short answer is: “Probably.”

OK, so those answers seem to cancel each other out and put you between a rock and hard place. To clear things up a bit, let’s explain “probably.”

Can You Afford a CFO?
A small business owner can cut to the chase as to whether or not their business is too small to hire a full-time CFO once they’re aware of the average salary of a professional CFO, which generally runs in the 6 figure range.

According to a 2010 survey conducted by BusinessKnowHow.com only 27% of small business owners had household incomes in the 6 figure range, and that included any income coming from a spouse or any other source outside their small business. Supporting the notion that a majority of business owners aren’t in the CFO hiring bracket is a Dun & Bradstreet article that notes the U.S. Treasury’s Office of Tax Analysis statistics indicate “the average small business owner’s net income was approximately $36,600 in the last pre-recession year (2007).”

Now, those stats are a bit dated – but with the economy still struggling it’s probably pretty safe to assume those numbers haven’t dramatically increased, which means that even without performing a formal statistical analysis, it is likely safe to say that most small business owners aren’t able to afford hiring a full-time CFO, nor have they reached a revenue tipping point that indicates the business requires the expertise of a CFO.

What If I Still Think I Need a CFO?
If after reading all those numbers you are still convinced you need a CFO congratulations are in order because this means you are most likely looking for someone with the financial know-how to help you grow strategically. And that’s (hopefully) due to recognizing the importance of developing a strategic plan.

However, it can also mean that you’re experiencing some “unanticipated” growth that’s having a negative impact on things like cash flow – and that’s enough to make any small business owner nervous, and rightfully so.

In either of these situations you might just be hitting the nail on the head regarding the ability of your current accountant to provide you with necessary assistance or direction. In general, accountants can be viewed as someone with the ability to “account” for your finances, for example they can oversee accounts, verify invoices are correct, track and pay bills, perform bank reconciliations, and put financial statements (such as Profit and Loss) together.

A CFO can do these things for your small business, but they add a more sophisticated dimension. In general, most accountants handle “what happened in the past”, for instance the bills they pay are for services or products already rendered. However, while an accountant can assist with creating a budget – a CFO can take that budget one step further and assist in identifying and executing financial strategies designed to meet future goals – goals they’ve used their expertise to develop.

While accountants can perform skilled tasks regarding things such as receivables, revenue cycles, inventory levels, and cash flow, CFO’s take that a step further as they have the ability, education, experience, and skill to see inter-relationships between those tasks and can assess whether or not the direction your taking is sustainable. For instance, when experiencing or looking to grow your small business, a CFO can perform financial and market projections and analysis that allows you to determine a rate of growth that lowers the risk of growing too fast and placing your business at risk.

I Need a CFO But Can’t Afford One – What Now?
Small business owners who can’t afford a full-time CFO may still have options for bringing in the expertise of a CFO. The most obvious is determining if bringing a CFO in part-time rather than full-time will work for you financially. There are also a number of CFO consultants who will come in and work in concert with your accountant. Most consultants will work with the business owner and their accountant to assess the current status, develop strategies, and then contract to come in a specific number of hours per month to oversee how those strategies are working.

If either of the above options is still out of your range, there are more creative approaches you may want to investigate. For instance, you may be able to barter services or products in return for CFO services. You can also look into developing a relationship with a local college or university school of finance and put together an internship for students ready to graduate. You can also have a CFO participate in your small businesses’ strategic planning retreat and then execute strategies they’ve helped to identify during the session. Depending on who else is part of your strategic planning team (for instance other small business owners, investors, business banking executives) a CFO may be willing to do this for free or at a reduced fee as it presents a networking opportunity.

Last modified: March 4, 2013
Annie Kile


This story is part of our Small Business Corner, a peek into the life and trials of small business owners.

Category: Insider's perspective, MPR Authored, Small Business, Small Business Corner, small business owners, tips

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