When you first started your business, hiring a CFO probably wasn’t on your mind. But as time passes and your company scales, the needs of your financial department will change.
Eventually, your small business will need to consider working with a CFO. But when?
Timing is everything when it comes to the CFO role in small businesses. If you bring one on too soon, there may not be enough for them to do. But if you wait too long, then your business could end up in a financial crisis.
Whether you plan on hiring a full-time employee or using outsourced CFO services for this role, these are the top 10 signs that your small business needs a CFO.
1. You’re Experiencing Rapid Growth
Sometimes small businesses scale too quickly for the owner to keep up.
Managing 5 employees and $500,000 in annual sales isn’t the same as managing 20 employees and $5 million in sales.
For you to properly handle this type of growth, you’re going to need someone to take on some responsibility in your finance department. You may not have experience managing millions of dollars in cash flow, but an experienced CFO does.
2. Profitability is Unsatisfactory or Declining
Your small business should also consider a CFO if your profits are dropping and you don’t know the cause. This is especially true if sales are remaining the same or even increasing.
A CFO will have a better understanding of what’s causing your declining profits.
Your small business CFO can analyze your financial reports, receivables, payables, cash flow, and provide insight on their findings. You can use their guidance to get your profitability back on track so your business can grow.
3. You’re Entering a New Market
While a CFO is often associated with financial decisions, their expertise goes far beyond finance. CFOs are also excellent at predicting market trends and using data to recognize new opportunities.
Whether you’re planning a new offering, service, product, or targeting a new customer base, a CFO can help make sure that the expansion is successful.
Your CFO will tell you when your business has the financial resources and capacity to enter new markets.
4. You Need to Raise Capital
For one reason or another, there will be times when your small business needs to raise money.
Maybe you need to buy new equipment and you’re looking for a bank loan. Or maybe you’re looking for something more substantial from an investor or venture capitalist.
Regardless of your situation, a CFO can assist you with this process. They will make sure all your financial documents are accurate and organized when you’re presenting them to a lender or investor. This increases the chances that you’ll secure the funding needed.
Furthermore, lots of CFOs tend to have relationships with VCs. So, they can potentially introduce you to investors as well.
5. You’re Planning an Acquisition or Merger
Mergers are complicated. If your small business is being acquired or plans to acquire another business, you will need a CFO on your team.
Your CFO will make sure that all of your financial reports are accurate before, during, and after the merger is complete. They will also be able to analyze the financial data of the other company to ensure that the acquisition makes sense for your business.
A small business CFO will help take some responsibility off your hands during this type of transition while ensuring the process goes as smooth as possible.
6. Your Company is Going Public
IPOs are exciting for small business owners. It’s a way for you to scale your business to the next level and drastically increase the value of your company.
So, if your ultimate goal is to go public in the future, make sure you have a small business CFO.
Your business will be subject to audits when you go public. While it’s always important to have accurate bookkeeping and financial reporting, it’s even more crucial for public companies. You have a responsibility to shareholders to provide accurate information. A CFO will help you with all these components of going public.
7. You’re Running Out of Cash
Your small business can’t survive without cash. That’s a harsh reality that far too many business owners learn.
It’s easy to predict cash problems when nobody is buying your products or services. However, lots of small business owners start running out of cash even when sales are high. So, what’s the problem?
A CFO can help with cash flow management for small businesses.
They’ll discover the areas where your company is overspending, and find ways to reduce or eliminate unnecessary costs. CFOs also have strategies for keeping a positive cash flow, such as quickly collecting receivables and extending payables.
Your CFO can facilitate department audits, inventory audits, and make sure that you always have plenty of extra cash on reserve as well.
8. Your Staff is Spending Too Much Time Managing the Books
Who is currently managing your books?
Whether it’s you, a bookkeeper, or a combination of both, you need to take a step back and see if your time is being spent wisely.
If you’re being forced to come in on nights or weekends to handle simple bookkeeping tasks, that’s not an efficient use of your time. This goes for your staff as well. You could be paying unnecessary payroll fees because your bookkeeping department is inefficient.
A CFO can improve your entire bookkeeping process. They’ll be able to delegate responsibilities and ensure that you’re using the latest software to streamline your bookkeeping tasks.
9. You’re Being Audited
Whether it’s coming from the IRS, a bank, investor, or local office, audits can be a headache for small business owners. The same goes for nonprofit organizations with revenues high enough to require an accounting audit.
But with a CFO, you can rest easy knowing that your books are accurate and presentable for whoever is reviewing them. Accurate financial reporting reduces that chances that you’ll have to pay any fines or back taxes.
As I briefly mentioned before, CFOs can also assist with internal audits, which is something that your small business should do on a regular basis.
10. You Can’t Interpret Your Financial Reports
Even if you have a bookkeeper who generated accurate financial reports, those documents will be useless if you can’t understand them.
You’ll always need to refer to your finances before you make an important business decision. But if you can’t read the reports, some decisions could turn into costly mistakes.
CFOs are experts in analyzing financial reports. They’ll be able to tell you if you can afford to buy new equipment, hire new employees, expand your territory, take on debt, and other important financial commitments.
Conclusion
Not every small business needs a CFO.
However, as your business starts to grow and things change, your small business may start to show signs that it needs an executive role in the finance department.
So, if your small business is starting to exhibit the signs on this list, it’s time to bring on a CFO.
Rather than hiring a full-time CFO, you can consider an outsourced CFO or interim CFO service as a cost-effective alternative. These types of services are growing in popularity, especially for small businesses.
It’s an appealing option since you get the resources of an experienced CFO, without the expensive costs associated with a full-time salary. If you’re interested in this type of service, contact us here at Navitance for more information.
