Many small businesses operate with only a bookkeeper and CPA to manage the finances. The owner or GM fills in, or at least think that they fill in, for all of the duties of a Chief Financial Officer (CFO). As a result owners of these businesses frequently have inadequate financial information to effectively move ahead. And, they are frequently using scarce resources (their time) performing tasks far better done by a professional, experienced hand.
In this time of readily available outsourced or part-time professionals there are very few worthwhile reasons not to have your own CFO. Depending on your size, your CFO might appear once a month or several days a week.
So, let me list a few reasons for you to find a part-time CFO.
1) Keeper of the Numbers. A primary function of a CFO (and the whole accounting/financial management infrastructure) is to keep the numbers for the organization. It is very important that those who are producing the numbers (sales, marketing, operations, new product development, engineering, and so on….) not also keep track of the score. In part this is because keeping score is not what they are really good at. More importantly, you want to avoid the temptations of manipulating the numbers or running off into to self-deluding behaviors that inevitably come from the doers keeping the score. In a parallel line of organizational processes, accounting systems are double entry exactly to increase the difficulty of theft, at the worst, or simple bungling errors. Having a separate score keeping system provides the duplicate set of eyes, ears, and thinking to assure that the top and bottom lines are real and accurate.
2) Cash Flow Analysis and Management. Your part-time CFO will create a cash flow projection spreadsheet so that you can see what your actual situation is today and what it will be in a week, month, or quarter. This will allow you to manage your cash with full visibility to all its sources and the claims against it. This invaluable little tool will also allow you to perform “what-if analyzes” that will show the impact of all sorts of business decisions on your current cash and probably future cash flows. This will move you beyond looking at your checking account and applying mental gymnastics about who owes you money and who else has claim on it.
3) Product/Customer Analysis. Where are your sales and profits coming from? Which of your products, product lines, and customers are actually producing sales? Which are producing profits? Your part-time CFO will build another spreadsheet, extracting information from your accounting package, that will build a picture, in numbers, of how your business model is working. Instead of looking at the aggregate, you will discover where and how you are actually making money.
4) New Product/Project Development. Your CFO will look at the business model for major new projects, products, services, new acquisitions, mergers, etc. and present an analysis, based on the best numbers available, of whether the project will make money and when. The CFO holds your feet to the fire and brings a different perspective to the enthusiasms of the deal makers, the engineers, and marketeers.
5) External Relations. Bankers and other institutional sources of money have their own language, world views, and processes. CFOs know how to deal with these parties effectively. Working with the owner, better deals and smoother longer term relations are more likely. In addition, CFOs can manage relations with payroll companies, accounting software vendors, and other third party providers to the financial and administrative components of your business.
6) Implementing Tax and Legal Recommendations. Your CFO will work with your CPA to implement strategies to achieve tax related objectives. CFOs and CPAs share enough common language and process to work together much more effectively than most business owners/managers. And, the CFO can be uniquely assigned to assure that the required tasks are carried out.
7) Organizational Integrity and Reliability. Finally, your CFO will examine your business systems to assure that they are rugged, reliable, accurate, timely and as theft-proof as possible.
In another article, How to Hire a Part-time CFO, I examine how to find and select a part-time CFO and how to establish a good working relationship that is well integrated into your company.