Do You Need a CFO?

“Do I need a CFO?”

This question pops up casually at almost every lunch or event I attend.

And it’s not surprising for CEOs with good controllers and accounting managers to struggle with it. The lines between unique skill sets are blurred in many companies; however the differences are important and should not be overlooked.

This post explains four key job responsibilities of CFOs and highlights red flags, which are helpful for deciding if it might be time to consider hiring a full time or part time CFO.

Reporting versus managing

As a CFO who is also a CPA, I find myself in the unique position of fulfilling both roles on any given day. However, at the end of the day, I’m a CFO. Many businesses have a controller with a CPA and an accounting manager with a CPA. So, what are the differences between the skill sets and mind sets?

Controllers and accounting managers tend to be somewhat technical and less operational in nature.
At a fundamental level, controllers or accounting managers are 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

A good CFO is as much an operations manager as a financial manager and a successful CFO focuses on four key things:

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

Let’s explore the role in more detail.

1) Disciplined management process custodian

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 build such visions out of day to day activities. Turning ideas into outcomes requires a disciplined management process, which includes processes for setting goals and 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 to hitting goals, it may be time for a CFO.

Red flags: Regularly missing goals, lack of accountability

2) Turning numbers into issues

CEOs and other executive leaders in growing companies must confront the constant pressure of daily operational tasks and pressures. Yet someone needs to keep a constant watch for issues arising from the company’s regular financial numbers.  This role must also focus on the difference between “leading indicators” and “trailing indicators.” Financial numbers are a trailing indicator because there is no changing the result.  It is important to identify, especially for the CEO and the operational managers, the leading indicators that predict future financial performance, with enough lead time that the operational managers can take steps to impact future performance. If no one is doing this within your organization, it’s another good 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

In addition to the point above, effective comprehension and reaction to reports created by the controller or accounting manager is required to run optimize day to day business operations. However, such reports can overwhelm as a company’s activity grows. Reports must not be ignored and a lack an appropriate reaction is a sure sign you need a CFO.

As a CFO, one of my favorite credos is that the goal of numbers is action. That’s why, when I work with a client, I like to examine all their regularly issued financial reports. I 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 usually are put on a shelf; and 3) truly meaningful reports, which result in action steps being taken because someone has looked at them. The goal is to align reporting needs with the disciplined management process and eliminate the “noise” of interesting reports, which aren’t driving any actions.

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

4) No surprises

Although this point could go first, I saved it for last because it ties all the other points together. Ultimately, the role of the CFO is to help ensure the CEO is never surprised by an issue with significant financial consequences. And if the CFO oversees an effective disciplined management process and follows good reporting practices that should never happen.

Yes or no? Putting it all together

Despite all the red flags and warning signs I’ve shared, on some occasions the decision to use a CFO isn’t always clear. For example, one client brought me in because they were growing and wondered if they needed a CFO. In their case, the answer was no 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, I worked with a client who relied on a technical controller and thought it may be time for advanced assistance. In their case, the executive management team was regularly surprised by cash deficiencies. The controller was producing monthly reports, but the management team didn’t read them because they were difficult to understand. They also didn’t meet regularly to discuss the numbers. In this case, the company needed a CFO. (Keep in mind that in situations like this, it’s sometimes possible to mentor the controller into becoming the CFO).

Regardless, if executives are regularly surprised by financial issues, it is time to have some additional expertise support you in making some changes.

Deciding what’s right for your situation

At vcfo, we pursue the “do I need a CFO?” question without bias. We love it when we can assure a company it can be successful while relying on current resources. We can also help you quickly determine if change is needed. If you noted any red flags as you read through this post, it’s time to get serious about answering the question. And it all starts with a quick conversation.

If you’re considering CFO services or CFO consulting in Dallas, let’s talk soon.