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Recruiting a CFO - The Considerations

During the life of a business there is always a requirement to have a finance function. At the start, this may be nothing more than a bookkeeper who records your historic costs every 3 months, so you can file the BAS return, collect money from your customers, pay the right money to your suppliers and prepare your accounts for the end of each year. For many entrepreneurs, this is what a finance function does - at least at the start.

The point at which a business needs a CFO

When businesses grow out of their embryonic stage, they become cottage industries in which the business management decisions are typically dominated by the entrepreneur. It is during this time the entrepreneur reaches a cross roads where they need to decide the future direction of the business. Are they simply going to use the business to generate a comfortable income for them and their family or are they going to build a business with equity value and a capital gain when they eventually come to sell the business. It's at this point the business will need to recruit the right level of support to manage their growth expectations.

It's important to understand what the longer term objective is going to be, in order to implement the right financial management controls.  For an income generating business that does not have ambitious aspirations to grow, the type of finance function and therefore the type of Chief Financial Officer needed, is very different to that required for a growth-business.

Recruiting a CFO for an Income Generating Business

Income generating businesses do not generally have plans to invest in the long term of the business. They generally react to changing customer demands and try to minimise the costs of their business so that they can maximise their own incomes. At a certain size, the finance function has to come in house - even if it is manned by part time or outsourced resources.

The key finance functions of a business like this are to record historic transactions and to control costs as tightly as possible. The business owner is also likely to remain deeply involved in the operations of the business.

A CFO for a business like this will perform the role more like a financial controller focusing on the historic reporting and basic financial control of the business. The finance function will operate in a silo while the business owner controls the operations. A good CFO in a business like this will be very focused on the numbers and the systems.

Recruiting a CFO for a Growth Business

Growth businesses need a very different CFO. Growth businesses are continually looking for opportunities to invest in growing the long term value of their business through product innovation, growing market share by exploiting more routes to market etc. As a result they tend to have a long term vision including an exit plan.

With so many competing requests for investment and management time, the CFO's core skill is to provide the strategic financial planning framework for decision making in this area to ensure that these strategic projects are approached in a structured and co-ordinated way. In contrast to the other type of CFO, the reporting and the financial control of the operations of the business are a means of delivering more management time to these growth activities.

CFOs in these businesses are also much more commercial and contribute directly towards the process of maximising profits and positive cashflow from the business. Therefore a good CFO for a growth business must be commercial, strategic and be excellent at working as part of an ambitious management team.

There is a huge cost differential between a CFO for an income generating business and a growth business. For this reason, many SME growth businesses employ a good financial controller for the reporting and control work and use a part time CFO for the strategic and commercial element.