When is the right time to hire a CFO?

I am often asked this question by business owners what is the right time to hire a CFO?  Many of these businesses have been working closely with their external accountant and have simply grown to a stage where they need more support and their external accountant has reached the limits of their service offering. This doesn’t mean there is anything wrong with their external accountant, it’s just that the business has reached a point in its growth cycle where it needs an in-house resource to provide a greater level of direction. Is this the right time to hire a CFO, has the business left it too long or should they hold off for even longer?

The best way to analyse these questions is to understand what a CFO does and the benefits a CFO would bring to your business. The pain points you are experiencing are usually around the following areas:

  • You are not sure what’s happening financially in your business.
  • You are not sure why it’s happening so your results don’t meet expectations
  • You are not sure what you need to do to change
  • How do you stop it happening in the future?

The areas in question are usually around profitability and cashflow. Your business is now larger, and you are having to rely on others to deliver results. When you don’t get the outcomes, you are expecting you get frustrated.

A CFO is experienced in managing these issues and can become your trusted business partner. They will be able to dedicate the time necessary to understand your business fully and put the financial structures and systems in place so that you have the controls and are back in the driving seat. They will help you to:

  • Identify cash requirements so that you can commit surplus funds to project that enable your business to grow
  • Understand what activities make money and what don’t
  • Streamline your dealings with advisors
  • Identify any risks in your business and help you put plans in place to mitigate them
  • Build a finance team so that your financial information is reliable and up to date

When your business has reached this point, and you are looking to strengthen your finance function, you may have already been operating in this state of uncertainty for some time. Without the right information, you may have been continuing activities which are unprofitable for longer than you needed to which would be having a negative impact on your cashflow. You may also have missed opportunities to divert resources into activities which are very profitable. When you do hire someone, there will be a lead time before these activities and their impact are identified and can be corrected, meaning further losses or missed opportunities.

Whilst many business owners wait for this to occur before hiring a CFO, they may have been much better off making that commitment a lot earlier before they “lost control”. A CFO brings a lot of experience to the table and could get a business up and running with the right systems and right processes to help you identify profitable activities and non-profitable activities as they occur. Because a CFO is working in your business on your business, they are much better placed to be more in tune with what is going on. Your external accountant will still be able to provide strategic input, but they can focus on what they do best – advise on structure, tax and compliance issues.

For many businesses, the cost of hiring a CFO can be prohibitive, but there are now part time options which are available. With a part time option, you get all the experience and assistance as if you had a full time CFO, and they can provide the Financial Leadership to help guide and develop your less experienced team. This enables you to hire full time staff at a less experienced level and can be a very effective cost structure.

The right time to hire a CFO is more likely to be at the stage where your sales are getting traction and you are starting to get consistent growth. You are also hiring additional staff to manage the increased workload and as you hire more staff you can start to lose touch with the day to day activities within the business. This is when you need proper financial information and metrics, so you manage the business.

If you hire a CFO at this point you will have tools to manage your growth. If you leave it too late, undesirable business practices can emerge. These undesirable business practices can take considerable effort and distraction to correct if they are allowed to become embedded in the business.