Why do you need a cfo

Generally speaking, businesses that are at this level in the Hierarchy of Needs can get away with not having a CFO. After all, the principal requirement is just a correct recording of the transaction s that the business is performing. Since this task is still fairly basic and can be done either with in-house trained labor or by hiring part-time external labor, it will likely not require the services of a more expensive, dedicated CFO. As financial and operational data is drawn from many sources into hosted accounting systems, the focus has shifted from manual data entry to ensuring and assessing the quality of the data and how it is captured.

As a result of this, the accounting systems and the operational interfaces need to be set up by someone with a strong understanding of the accounting principles. Specifically, when it comes to avoiding legal and compliance issues, accountants can be worth their weight in gold. This is a time where it would make sense to a company to pull in an external financial consultant to ensure that the applications are integrated properly and that there are policies set up to ensure that the usage of the applications supports the financial reporting function.

Another company that I recently consulted with needed to fix a faulty inventory tracking software implementation. The company had experienced significant growth in its first four years of operation but had failed to properly set up sales tax schedules and taxable items. This resulted in incorrectly reporting a rapidly increasing amount of sales tax over a period of years.

I worked with the business to fix the implementation, and file the corrected returns. Unfortunately, for many months, the cost of the penalties and interest exceeded the actual sales tax due. While fixing the implementation, other opportunities for improvement were identified and implemented. The client is now able to better report real-time profitability by product line through their accounting system.

It has also used this to make adjustments to its product mix at significant savings to the business. Nevertheless, the project served as a great example of the potential problems related to fintech. Even an adequately connected IT-based financial system will require a regular review of the data and account reconciliations.

These activities require not only a good understanding of accounting but also an ability to assimilate operational data into the financial records. With transactions being properly accounted for, a business can start reporting on the activity of the business.

The key difference here is that the reports start to take the shape of business lines e. Again, fintech has made it so that comprehensive reporting is more affordable and robust than ever before. Business schools have been evolving in recent years to ensure graduates have a strong understanding of fintech and its myriad applications.

Dedicated courses have even been popping up. That being said, it is important to know how the reports are going to be used prior to putting in place a reporting system. The main purpose is to communicate transactional information at the appropriate level for the audience in question. If not, the business will need to have someone who can properly convert the accounting information into meaningful communications. Not having a single source of data leads to either capturing less than percent of what was intended or, in some cases, duplication and more than percent of activity gets reported.

Successful reporting needs to be thorough, accurate, and complete, especially as these early-stage businesses are preparing to raise Series A funding. Nevertheless, one common option here is to seek part-time help from an external CFO. In my experience , this is usually when I get involved with the business.

It is also where I find I can start adding the most value. Reports on their own are not the end goal. They are supposed to be a means with which to understand business activity. Their bookkeeper provided them with cash balance reports but with no explanation. I worked with them to identify metrics, such as inventory turnover and days sales outstanding that they could track to give a better reflection of how the business was doing and to also help forecast future cash positions.

As mentioned, reports created for external use serve a different purpose than management reports, which are created for internal use. If they were created for internal use, they are the means by which the business learns about its activities and uncovers opportunities that can be acted upon. A business is more likely to thrive when reports are generated by a person who is skilled at analyzing and interpreting the financial data contained in the reports.

This person can identify when standard reports need more details and can create ad hoc analyses when it makes sense. Knowing when to take this next step and how to go about it only comes with experience. In particular, businesses experiencing rapid change cannot afford to skip interpreting the information contained in the financial reports. In fact, they should be strongly relying on these and on things such as dashboards of KPIs to help them navigate their way.

But creating meaningful dashboards is not as simple as it sounds. It requires understanding what factors drive the business and what signals they send off. Some KPIs may be purely financial whereas others might be a mixture of operational and financial data.

An experienced finance leader will know how to pull together this critical information or direct others in doing so.

With an accurate record of historical activity and analysis of the factors that influenced successes and shortcomings, a business can use the information gathered to develop financial forecasts. The process of creating a forecast is nothing like the steps for recording accounting activities and requires a different set of tools and skills. At some point in your evolution, you will need to hire an individual whose primary focus is on financial planning and analysis.

And at a certain stage, you will need to hire a chief financial officer CFO. But when does that touchpoint occur? Why do you need a CFO? And how do you go about hiring one? In this financial campaign, their primary obligations include forecasting, planning, and analysis —all of which help you scale strategically.

As the chief financial spokesperson, a CFO works alongside the chief operating officer COO to identify opportunities and potential risks. Deciding when to hire a CFO has always been a tricky balance.

Hire too soon, and you may not be able to afford them—hire too late, and you may miss out on chances to catapult the business forward. What assets will this merger bring to the table? Will you be taking on their debt? A CFO knows how to dig into these important questions for you. Your small business is experiencing rapid growth and revenue yahoo!

You know who you want to hire—and what positions need to be filled— but how does this fit into your overall business model and plan?

How do I know what to look for in a candidate? What other options do I have? Thinking about it? Contact us. Share This.