Most small business owners aim to hit a growth curve with revenues increasing exponentially. When you reach yours, you will start needing more help with finance and strategic planning. At this point—and especially as your firm moves from small to medium-sized—a chief financial officer (CFO) will become critical to smooth business operations and managing further progress.
CFOs are vital to growing companies because they help you determine the best path to scale; operationalize growth plans; and support functions across your organization. They also make sure all departments have the right resources and there are no barriers to growth.
But the CFO role in medium-sized companies has changed dramatically over the last few decades and their skills need to be much broader and deeper.
Should my company hire a CFO?
As firms get into millions (especially over $10 million revenue), they become more complex and need strong leaders in important divisions like finance.
But the requirement for a CFO is often less about company size, and more about having a strategic adviser with deep financial expertise on board. You need a CFO when your staff no longer have the time or experience to bring this deeper analysis. Among many other things, a CFO can optimize your tax, profit and cashflow positions; forecast future financial needs; and support strategic decisions with financial and data analysis.
The triggers for hiring a CFO are different depending on the industry you’re in. For example, a fast-growing technology company may look to hire a CFO after it has raised the first significant round of funding. In a manufacturer, distributor or retailer, the pandemic may have revealed supply chain problems that an experienced CFO can help solve. Any firm might need help with a significant merger or aggressive organic growth strategy.
You may also need a more experienced leader in your finance function to oversee financial transformation; implement new, cloud-based enterprise resource software; or overhaul your financial management and reporting software, and financial data and analytics capabilities.
Peter David, consulting CFO at CFO & COO Advisory Services, says when to hire a CFO also depends on your business’ complexity and leadership team skills. You may not need a CFO if your business model is simple—for example, with few stock keeping units, and no manufacturing or trade issues—and your leadership team have the information and performance management insights they need to run the business.
“Some mid-sized firms can do fine with a strong financial controller who can lead the budgeting, financial reporting, risk management, governance, audit and review responsibilities,” he says. “Many such companies have CFOs in title, but they are actually controllers with inflated titles.
“All early-stage companies think they are fast-growing and have five-year plan with a ‘hockey stick’ exponential growth projection. When they get to the tipping point of that growth, they need a full-time CFO for operational needs.”
Early-stage companies might also engage a part-time and/or interim CFO for fundraising efforts and guidance. However, if you aspire to go public or need to satisfy fundraising or venture capital requirements, you will need more permanent help.
“Investors typically want a CFO to bring transparency to the company’s performance,” says Peter. “So the trigger can be when the investors or board call for a CFO, rather than an operational need. But if you expect an initial public offering, you will need a CFO to get the governance and reporting in place as most controller level professionals don’t have the experience to guide that process.”
What are the CFO’s responsibilities?
A CFO is the most senior finance professional in a company and is responsible for its financial health. But they tend to wear many hats in medium-sized companies – and even many large ones.
Responsibilities include building the finance and accounting team; balancing income and expenses; overseeing financial planning and analysis; confirming accuracy of financial reports; analyzing financial data; and supporting strategic decisions. Strategic recommendations could be on anything from marketing spend to supply chain relationships, investments and mergers.
CFOs also need to partner with leaders across the organization and support its growth and scalability; and if you are venture-backed they also manage the fundraising process with your CEO.
“A CFO should at least be accountable for overall company performance through effective planning, performance management, risk management, governance, and organizational alignment—including effective HR and systems management,” adds Peter.
“In medium-sized firms, the role has typically evolved to include chief operating officer (COO), responsible for finance, HR, IT, and operations – with a vice president or senior VP of supply chain reporting to the CFO. In other words, they do everything except research and development, marketing, and sales.
“This means CFOs have become the chief connect-the-dots officers. They lead the finance controller tasks. They head up operational aspects such as demand planning, trade management, and sales and operations planning. And they lead financial areas such as dynamic planning models; and forecasting with rolling time horizons. These tie closely to financial analytics, and performance targets and measures.”
What skills do CFOs need?
CFOs of larger firms generally have a business degree, an MBA, and or an accounting qualification.
Peter says in the US a certified public accountant (CPA) and or MBA is typically necessary to be CFO of a company with IPO aspirations. The same goes for venture capital or private equity-backed companies. These qualifications indicate a grounding in broad business knowledge. But due to financial reporting requirements in the Sarbanes-Oxley Act, investors and the management team also need a CPA with experience rooted in governance and control, to provide confidence in public reporting.
“A good performance management system should yield good governance,” says Peter. “But having a CPA with audit background also provides more confidence.”
For privately held companies, broad experience in financial reporting and operational planning may be sufficient, he adds.
Traditionally, CFO skills have concentrated on financial aspects. Today, they must be more operationally focused and work cross-functionally. In a medium-sized firm, CFOs now typically wear many hats and manage finance, accounting, legal matters – and frequently HR too.
Core capabilities include strong financial reporting skills with a good understanding of generally accepted accounting principles (GAAP) and state and federal laws, such as Sarbanes-Oxley.
But they also need broad business knowledge; and a talent for analytics and performance management to support a results-oriented culture.
Increasingly, CFOs need to know more about technology, risk management, supply chains and, environmental, social and governance (ESG) measures. Data analytics and data quality have become two of the biggest issues requiring CFOs’ attention, so data and analytical skills are also essential.
Much of the role is now about collaborating with teams across the organization to execute the CEO’s vision. So CFOs also need good soft skills such as presentation, communication, leadership, and negotiation.
“These days, companies need to be nimble and not in a command-and-control system,” says Peter. “The CFO needs to empower the organization with the insights and tools to understand what matters, why it matters, and have the systems and structures to help them achieve clearly defined goals.”
With all these necessary skills, CFOs do not come cheap. According to salary.com, midrange US CFO salaries were between $318,000 and $534,000 in 2022. But for a scaling company, hiring a chief finance officer is a critical investment to help get them to the next level.
Midrange companies face a huge range of challenges, from managing the continuing effects of the pandemic to staving off digital competition and managing ESG-related risks.
It’s increasingly important to have a versatile financial leader who can adapt to the fast-changing environment while also supporting sound long-term strategy with evidence and analysis. The wide range of skills and experience necessary to be a successful CFO in a midrange company means really good ones can be hard to find.
So if you think the time might be right to hire one, don’t wait around. Start looking for your CFO early and get ahead in the recruitment race.