In the early stages of a small business, it’s common for the owner to handle the company’s bookkeeping.
Even if they’re not fully trained, it seems like owners do this either to keep costs low or limit the exposure of sensitive financial information to one of their employees.
I wouldn’t recommend doing bookkeeping on your own. With that said, you might be able to get away with it in the early months of your startup.
But as time passes and your business begins to scale, you need to prioritize accurate bookkeeping and hire a professional. However, you can’t rely on just one person to handle every aspect of your company’s finances.
Eventually, you’re going to need to hire a CFO.
Like most positions, timing is everything. Hiring a CFO too soon can be an expensive mistake, but waiting too long can be very costly in other ways.
So, when is the perfect time to hire a CFO?
I hear this question all the time. There is no definitive answer that applies to all businesses across the board. I can’t make a blanket statement saying that you should hire one after six months or 12 months.
Instead, I created this guide with a list of factors, scenarios, and information to give you a better understanding of the perfect timing. So, use this as a resource to determine if your company is ready to hire a CFO.
Know Your Limits
Not every business owner is qualified to be a CFO.
I know that you want to have control over as many aspects of your company as possible, but that’s not realistic. Thriving businesses have owners that know how to properly delegate responsibilities.
As I said before, you can probably handle some of the finances on your own in the early stages after your company launches. Realistically, most of you probably don’t need a CFO on day one.
But with that said, you don’t want to stretch yourself so thin that you neglect other aspects of your business.
Say you’re spending just two hours per day, five days a week doing the work that would normally be handled by a CFO. That’s ten hours that could be spent on growing your company, rather than trying to decipher financial statements.
Entrepreneurship comes with enough 80-hour work weeks and sleepless nights as it is. Don’t push your limits.
Unless you have previous experience working as a CFO, it’s much better to find someone who knows what they’re doing. Then you’ll be able to use your time more efficiently.
Understand Different Roles
When it comes to your company’s finances, there are different positions and job titles that will have separate responsibilities.
All too often I consult with business owners who say they don’t need a CFO because they have an accountant or a bookkeeper. That’s simply not the case.
Here’s an analogy. Let’s say you own a pizza shop. That would be like saying you don’t need a delivery driver because you have a chef. Those are two completely different positions, each with unique responsibilities.
I’ll go through differences between a bookkeeper, controller, and accountant so you can fully understand that these are not replacements for a CFO.
A bookkeeper handles the day-to-day accounting tasks. They keep records, and prepare essential financial reports, but don’t have any influence on a company’s strategy.
It’s common for a bookkeeper to:
- Record sales, expenses, payables, and receivables.
- Manage payroll.
- Prepare daily, weekly, monthly, quarterly, and annual reports.
- Pay bills.
- Ensure that paperwork and documents are safely stored.
- Manage health insurance plans.
- Handle credit issues with customers and vendors.
- Do daily deposits.
Controllers are basically mid-level financial managers that supervise bookkeepers, as well as any other staff in your accounting department. It’s typical for controllers to:
- Sign checks.
- Manage employees in the financial department.
- Create internal reports
- Pick the best accounting software for administrative purposes.
- Formally close the accounting cycle.
You could say that the accountant’s role begins where the bookkeeper’s role ends. CPAs will have more training and expertise than a bookkeeper, so it’s their job to make sense of all your financial data. Accountants will:
- Prepare taxes.
- Audit financial statements.
- Assist in tax resolution and be present during a third-party audit.
- Manage the personal finances of a business owner.
- File company tax returns and as well as individual tax returns for the owner.
Chief financial officers hold an executive position. They oversee the entire financial and accounting department. It’s the job of a CFO to:
- Assess financial risks.
- Prepare public offerings.
- Provide financial insights.
- Prepare budgets.
- Identify short-term and long-term financial goals.
- Forecast industry trends, market trends, and company trends.
- Finalize financial decisions.
- Guide a business through IPOs, acquisitions, or mergers.
- Analyze financial reports.
- Figure out how company’s assets will be invested.
- Assist in business expansion planning.
Signs You Need a CFO
So, do you need a CFO?
Here is a list of situations that would require the assistance of a professional CFO:
- You’re running out of cash and don’t know why.
- You need help managing financial risks.
- You don’t know how to reach short-term and long-term goals.
- You’re expanding the business.
- You need to secure funding from lenders or investors.
- You need to present your financials to a finance committee or board, and you don’t know how.
- Your company is being acquired, merging with another business, or is ready for an IPO.
- Your business structure is changing.
- You don’t know how to forecast market trends.
If you’re not currently experiencing any of the scenarios on this list, you can probably hold off on hiring a CFO for now. But as soon as one of these situations arises, you want to be able to bring a CFO on board as soon as possible.
Tips When Hiring a CFO
You can’t expect accounting software to fill the role of a CFO.
Humble yourself. Recognize that you can’t do it all, and it’s not in the best interest of your company for you to do everything either.
You must find a qualified expert who has experience as a CFO.
Don’t just promote your bookkeeper to CFO if they’re untrained and have never handled these responsibilities before. That would be disastrous!
Outsourcing and Interim CFO
Hiring a CFO can be expensive.
An experienced CFO won’t just take an executive position for a small business without adequate compensation. Not every company has the funds to hire an executive.
But by outsourcing CFO services, you don’t have to pay an employee.
That means you don’t have to pay for recruiting, signing bonus, training, give them health insurance, offer stock options, vacation time, and incur the added payroll expenses.
An interim CFO is a cost-effective alternative to a traditional employee. Look for an outsourced option that’s reliable, and has expert experience in your industry.
If you’ve made it this far reading this guide, there is a good chance that your startup is ready to hire a CFO.
This is an important decision, so don’t just hire the first person who walks into your office and asks for the job. Hiring from within the company isn’t always the best option either since your employees typically aren’t qualified to handle the responsibilities of a CFO.
Rather than going through an extensive and expensive hiring process, you’ll be better off outsourcing these services.
Here at Navitance, we specialize in startups poised for growth. So, if your small business is ready to work with an interim CFO, we’ll be able to meet your needs.