Introduction:

As a business owner, you understand the importance of making critical decisions that can significantly impact the success and growth of your company. One such decision revolves around determining when your business will need a Chief Financial Officer (CFO). The answer to this question is not a straightforward one, but it is a vital consideration for both family-owned businesses and enterprises of all sizes. In this blog post, we will explore the factors that indicate when your company might benefit from having a CFO and the value they bring to your financial management.

 

The Role of Accounting and Financial Management:

At the outset, all companies, regardless of their size or structure, need to maintain accurate accounting records to fulfill their tax obligations and maintain relationships with banking institutions. This task can be handled by a bookkeeper, accountant, or accounting manager. However, as companies grow larger and become more complex, typically around the $10 million sales mark, basic accounting or bookkeeping services may no longer suffice.

 

Companies at this stage require financial management, which entails more than just maintaining records. Financial management provides access to better financial information, including projections that help anticipate upcoming challenges or opportunities. An individual capable of handling both accounting and financial management tasks would be suitable for the role of a Controller within the organization.

 

Unlocking the Benefits of Better Financial Information:

To illustrate the benefits of better financial information, let’s consider an example. Many business owners assume that increased sales automatically translate into higher profits. However, several factors can hinder this assumption:

 

Selling less-profitable products at higher volumes while neglecting more-profitable ones.

Making incremental sales at significant discounts, which essentially trades future sales for short-term gains.

Focusing on the largest customers, who may not always yield the highest profitability.

Failing to adjust prices to offset rising costs.

To maximize profitability, owners must manage what they sell and to whom they sell. This includes effectively managing margins in addition to sales. By employing more sophisticated financial management practices, business owners gain access to valuable information and analyses that help identify profitable and unprofitable products and customers. Armed with this knowledge, informed decisions can be made, increasing the likelihood of achieving desired results.

 

When Does Your Company Need a CFO?

While the need for a CFO varies depending on the size and complexity of the business, a general rule of thumb is that once a company surpasses $100 million in sales, it is highly likely to require a CFO. Unlike a Controller, a CFO possesses the financial sophistication and expertise to manage larger and more complex businesses effectively. Moreover, a CFO can play a pivotal role in crucial activities such as raising capital through equity or debt financing, preparing a company for an IPO, facilitating acquisitions, or presenting comprehensive analyses for a sale at the maximum price.

 

For companies with sales below $100 million, an alternative option may be to reward a valued employee with the CFO title as a means of recognition for their contributions and to help retain their talent.

 

Conclusion:

Determining the right time to hire a CFO is a crucial decision that business owners must make as their companies grow and evolve. By understanding the value that a CFO brings to financial management, decision-making, and strategic initiatives, you can position your business for sustainable growth, improved profitability, and increased success. As your company reaches key milestones, such as surpassing $10 million and $100 million in sales, consider evaluating whether the time is right to bring a CFO on board and leverage their expertise to drive your business forward.

 

 

LPL Tracking # 458077