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Do I Need a CFO?

Some form of the question, “Do I need a CFO?” surfaces in the course of conversation at a very high percentage of the lunches or professional events our vcfo consultants attend with business leaders. It’s a pivotal and not surprising question for CEOs to struggle with, especially when they have solid controllers and accounting managers in place. In many companies, the lines between the unique skill sets of each of these roles are blurred; however, the differences are important and should not be overlooked.

Below, we examine four key job responsibilities of CFOs and highlight red flags that can signal when it might be time to consider hiring a full-time or part-time CFO.

Reporting versus managing

Sometimes, our consulting CFOs are also CPAs. As such, they often find themselves in the unique position of fulfilling both roles on any given day. However, at the end of the day, they are CFOs. Many businesses have both a CPA-credentialed controller and a CPA-credentialed accounting manager. So, what are the differences between the skill sets and mind sets in these respective roles?

Controllers and accounting managers tend to be somewhat technical and less operational in nature. At a fundamental level, they serve as “Chief Reporters.” They need to understand good accounting because they are responsible for:

  • Accurately reporting historical numbers;
  • Keeping track of GAAP and accounting pronouncements;
  • Accurately reporting differences between actual and budget at an appropriate accountability level; and
  • Interfacing with, and handling, any audit or tax requirements

An effective CFO adopts the perspectives of both an operations manager and a financial manager and focuses on four key things:

  • Overseeing a disciplined management process;
  • Transforming numbers into issues;
  • Turning reports into actions; and
  • Eliminating surprises

Let’s explore the four key job responsibilities and related red flags in more detail

1) Ensuring a disciplined management process

On most leadership teams, the CEO and other executives focus on the company vision and strategic planning for the future. What’s often missing is someone who can bring such visions to life from day-to-day activities. Turning ideas into outcomes requires a disciplined management process, which includes robust processes for setting goals and then holding people accountable for those goals.

The number one responsibility of the CFO is to be the custodian of a disciplined management process within a company. If your company is struggling to turn ideas into specific action steps and hold people accountable for achievement of these actions, it may be time for a CFO.

Red flags: Regularly missing goals, unreliable accountability mechanisms

2) Turning numbers into issues

CEOs and other leaders in growing companies face a deluge of daily operational tasks and pressures. Still, someone needs to continuously watch for issues arising from the company’s regular financial numbers. This role must also focus on the difference between “leading” and “trailing” indicators.

Financial numbers are trailing indicators because they are results that cannot be changed.  It is important to identify, especially for the CEO and operational managers, the leading indicators that are predictive of future financial performance, and do so with enough lead time so that operational managers can take any needed steps to impact future performance. If no one is doing this within your organization, it’s another sign that you could use the help of a CFO.

Red flags: Frequent operational surprises with definitive financial impact

3) Making a difference with reporting

Building on the point above, effective comprehension and reaction to reports created by the controller or accounting manager is also required to optimize day-to-day business operations. But as a company’s activities and complexity grows, reports like these can become overwhelming for those who were comfortable analyzing and applying them when the company was smaller. Reports must not be ignored and the absence of appropriate reactions to them is a sure sign you need a CFO.

A common and favorite credo of our CFOs is that the goal of numbers is action. That’s why, when we work with a client, we like to examine all their regularly issued financial reports. In doing so, we usually divide them into three categories: 1) reports that are created for a rule-driven or regulatory need; 2) “oh-my-that’s-interesting” reports, which are usually shelved; and 3) truly meaningful reports, which result in action steps being taken because someone has reviewed them. The goal is to align reporting needs with the disciplined management process and eliminate the noise of interesting but unimpactful reports that do not drive actions.

Red flags: Many reports that people don’t read, confusing reports, lack of regular meetings to review numbers, infrequent actions related to reports

4) Eliminating surprises

Although this point could be made first, it’s placed here because it ties all of the preceding points together. Ultimately, the role of the CFO is to help ensure the CEO is never surprised by an issue that could have significant financial consequences. If the CFO oversees an effective disciplined management process and follows good reporting practices, this should never happen.

Yes or no? Putting it all together

Despite the red flags and warning signs detailed here, on some occasions the decision of whether a CFO is needed is still unclear. The answer was no for one growing client, because they had a Controller who was producing good reports and an Accounting Manager who was doing a great job with technical details.

In another case, a client who relied on a technical controller thought it may be time for advanced assistance, as the executive team was regularly surprised by cash deficiencies. The Controller was producing monthly reports, but they went unread because they were difficult to understand. There were also regular meetings to discuss the numbers. This company needed a CFO. (Keep in mind that in situations like this, it’s sometimes possible to mentor the Controller into becoming the CFO.) If executives are regularly surprised by financial issues, it is time to have additional expertise support you in making changes.

At vcfo, we pursue the “do I need a CFO?” question without bias. It is an absolutely positive experience when we can assure a company that it can be successful by relying on current resources. In any case, we can help leaders quickly determine whether changes are warranted. If you recognized any red flags in your organization as you read through this post, it’s time to get serious about answering the question.

Have questions on whether your organization needs a CFO? Request a free consultation from a vcfo expert who can help.  

Originally published May 22, 2017. Updated and republished October 3, 2019