What is a CFO?

The acronym CFO stands for “chief financial officer.” This position holds the senior executive role in the finance department for a business. They have a wide variety of responsibilities, ranging from cash flow management to financial planning.

A CFO oversees the entire financial department and reports directly to the CEO.

With that said, a CFO will also play a role in other aspects and departments within a business. For example, before a marketing team launches a new campaign, the marketing manager may consult with the CFO to see if the budget is sustainable.

The role and responsibilities of a CFO will vary based on the size of the company. A small business CFO won’t have the same responsibilities as a Fortune 500 CFO.

Ultimately, CFOs are crucial to the success of all businesses, regardless of size or industry.

As a business owner, you need to know what a CFO does and how to find one that’s right for your company. Whether it be a part-time CFO, full-time CFO, outsourced CFO, or interim CFO, this guide will tell you everything you need to know.

What Does a CFO Do?

So, what exactly does a CFO do? As I previously mentioned, the responsibilities vary based on the size and needs of the business that they’re working with.

To give you a better understanding of what a CFO will handle for your business, here’s a list of common responsibilities.

  • Financial Strategy — Create a long-term plan for your company’s financial growth.
  • Forecasting — Predict the future of your business and industry with both short-term and long-term forecasting.
  • Budget Management — Generate a detailed budget. Track the budget against actual expenditures to see if any adjustments need to be made.
  • Analyzing Financial Reports — Examine and interpret financial reports. Use that information to make crucial decisions based on trends.
  • Capital Structure — Identify the type of financing your company needs and find the best ways to raise capital (banks, investors, VCs, etc.).
  • Cash Flow Management — Make sure that there is always enough cash on hand for operational purposes. Come up with ways to improve cash flow.
  • Acquisitions and Mergers — Help navigate if your company is being acquired or if you’re acquiring another company.
  • Audit Preparation and Representation — Represent your business during a third-party audit. Make sure that all your financial documents are accurate and in order. Facilitate internal audits when necessary.

Some CFOs also offer specialized services based on their expertise. For example, you can find a CFO that specializes in nonprofits or a CFO that specializes in startups.

For a more detailed description of what a CFO does, refer to my guide on the most common outsourced CFO services.

When to Hire a CFO

Not every business needs a CFO, at least not right away. So, when should you hire a CFO?

You should consider hiring an outsourced CFO for your startup when your limits have been reached. In the early stages of your business, it’s possible for you to handle basic financial tasks.

But as your business grows, you’ll need to spend more time focusing on other areas of your company. Your financial department will eventually become more complex and require the assistance of a professional.

Not only will this result in a more effective use of time for you and your staff, but it will also improve the overall health of your bookkeeping department.

Here are some common signs that your small business needs a CFO:

  • Your business is growing at a rapid rate.
  • Profits are declining or below expectations.
  • Your offerings are expanding.
  • You need to raise capital or secure funding.
  • An acquisition or merger is on the horizon.
  • You’re planning to go public.
  • Your business is running out of cash.
  • You’re spending too much time managing your books.
  • Your company is being audited.
  • You can’t understand your financial reports.

If your business is going through one or more of the signs listed above, it’s time for you to seriously consider working with a CFO.

Hiring a CFO is more urgent if your company is experiencing several of these.

For example, if you’re just planning to launch a new product or service, then you don’t need to hire a CFO tomorrow. But if you’re also growing rapidly, running low on cash, and need to secure financing simultaneously, then finding a qualified CFO needs to be a top priority.

How to Hire a CFO

Once you’ve established that your company needs a CFO, it’s time to hire one.

However, hiring a full-time in-house CFO can be expensive. Some executives will demand no less than six figures for the position, which is unrealistic for most small businesses.

With that said, your business most likely does not need a full-time CFO. You probably don’t have enough work for them to do in a 40+ hour work week. That’s why outsourcing a part-time CFO is so appealing.

When you’re going through the hiring process, here’s what you need to look for in a CFO:

  • Industry Experience — Find a CFO who specializes in the type of business you have, such as a startup or nonprofit.
  • Leadership Skills — A CFO must be able to effectively manage your financial department.
  • Communication Skills — Delegate tasks and responsibilities to your team across departments while making sure everyone is always on the same page.
  • Problem Solving — Recognize and solve problems before they arise based on forecasts and other financial data.
  • Financial Education — The best CFOs are also well-versed in accounting, investing, risk management, and credit management.
  • Reliability — Your CFO needs to be someone you can count on.

It’s also important that you find a CFO who is a good cultural fit for your business. Having a good relationship with you and your staff will make things much easier for the entire team.

For more detailed information on all of this, refer to my in-depth guide on how to hire a part-time CFO.

Benefits of an Outsourced CFO

If you’re not ready to hire a full-time CFO but you still need CFO services, then outsourcing the role will be your best option. This alternative has become extremely popular, especially for small businesses.

These are the top benefits of a virtual CFO:

  • Cost — Less expensive than a full-time employee. You also won’t incur costs associated with payroll, training, and employee benefits.
  • Experience — Outsourced CFOs have worked with dozens of businesses, as opposed to just one or two during their careers.
  • Accuracy — Improve the accuracy of your bookkeeping process and financial reporting.
  • Adaptability — Outsourced CFOs are used to working with different businesses and personality types. They are quick to adapt to unique situations.
  • Credibility — Proven track record of businesses that they’ve helped.

Another top benefit of outsourcing the CFO role is that there is a much shorter learning curve.

Virtual CFOs have experience with onboarding at different companies. So they can get up to speed with your processes and needs much faster than a traditional in-house employee.

CFOs For Startups and Small Businesses

For the most part, a startup company won’t always need a CFO on day one. However, you shouldn’t assume that CFOs are only for enterprise-sized businesses.

Here are some ways that CFOs can help startups, specifically:

  • Cash Flow Management — Make sure that your startup doesn’t run out of cash in the early years of operation when sales are low and expenses are high.
  • Improve Financial Processes — Set up your finance department by delegating tasks and responsibilities.
  • GAAP — Apply the generally accepted accounting principles to make sure that your startup is following bookkeeping best practices.
  • Secure Funding — Help you secure a loan or raise capital from an investor.

Review my guide on how a CFO helps startups for a more detailed analysis on this subject.

Does Your Small Business Need a CFO?

If you’re not sure, I’d highly recommend reading this article on if a CFO or controller is best for your small business.

Outsourced and Interim CFO Services

For those of you who are ready to work with a CFO, you should consider using an outsourced CFO or interim CFO service.

This option gives you the flexibility to meet your short-term and long-term financial needs.

Our CFO professionals here at Navitance can help your business increase profits, improve cash flow, and guide you through transitions, challenges, or periods of growth.

By outsourcing a CFO, you’ll be able to spend more time focusing on other areas of your business, while simultaneously improving your finance department. Request a consultation with us today.