Most business owners have heard of a Chief Financial Officer (CFO), but many do not understand what a CFO does and how that role might be different from the role of a traditional Controller. Many of the businesses we advise struggle with whether or not to bring on a CFO. Here are some things to consider.

What is a Controller?

Controllers are primarily focused on reporting and compliance in the finance and accounting areas (what was and what is). Controllers manage and maintain accounting controls and related systems (the debits and the credits).  They also manage and/or produce the monthly financial reports, year-end reports and other financial reporting. Controllers usually handle tax compliance for federal, state, and local income taxes, as well as payroll, state sales and property taxes. These are essential components to strong financial controls, which are critical for a business to grow and be successful.

How is a CFO different?

A CFO is focused on the future of the company, so he or she will use financial, operational and sales information to plan and forecast (what is and what will be). These efforts allow the CFO to provide the company owners and leadership team with information necessary to make decisions around direction and strategy. This doesn’t mean the CFO doesn’t understand how the financials are developed or how the accounting is done. In fact, the CFO should be spending a lot of time ensuring that the business has excellent financial controls in place so the information that is created is timely, relevant, and accurate.

Because of this focus on the business at a high level, the CFO becomes a powerful strategic partner to the owner and other business leaders.

Additionally, CFOs spend a lot of time on external relationships in an effort to provide the business with the best information and resources available. These can be relationships with professional service providers like the company’s Certified Public Accounting (CPA) firm, banks, legal advisors, and risk/insurance providers. These could also be relationships with specialty providers like outsourced IT firms, software programmers, HR management firms, or consultants. CFOs are also often asked to develop relationships with key community partners.

So how do I know it’s time to add a CFO?

This is a question we are frequently asked by clients. For every company it can be different, and our firm does a very thorough analysis of a company before making a recommendation, but here are some scenarios where adding a CFO may make sense.

Leverage is increasing. Having just a controller makes sense when a company has a strong balance sheet and low leverage.  As the leverage increases, more care needs to be given to the balance sheet, forecasting, cash management, and external relationship management. This is where a CFO can help.

Business complexity or risk is growing. Perhaps your company is looking to acquire a business, implement a new ERP system, take on an equity partner.  All of these events create complexity in and risk for the business and require someone with strong financial and analytical skills to properly plan for the events, forecast the impact of the event, solicit the appropriate outside advice, and support the business. This is the role of a CFO.

Financial information is lacking. Often, as a business grows, the financial information does not keep up. Larger businesses often need very specific information or forecasts in order to make strategic decisions. Sometimes the business doesn’t even know what information it needs! Having a qualified CFO to anticipate and create timely, accurate and relevant information to support decision making is critical for businesses to grow.

I’m still not sure.

Hopefully this provides some clarity. If you still have questions and would like to talk, please feel free to contact us.

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