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You Probably Don’t Need a CFO….Yet

When I worked at GoTo.com in the late ’90s, we had an amazing CFO, otherwise known as the Chief Financial Officer. He navigated the company through multiple stages of equity financing. This included taking the company public, managing secondary offerings, and assisting with the company sale to Yahoo in 2003. Back then, I didn’t appreciate just how much stability he brought to the business. Given the business went from $822K in revenue in 1998 to $670 million in revenue in 2002, massive financial management was required. But that was GoTo.com. Most companies, the vast majority of companies, do not need a CFO… at least, not yet. Let me explain.

CFO’s are valuable company resources, designed to help drive strategy and be a catalyst for growth from a financial perspective.

Examples of CFO Engagement Include…

  1. Putting together financial models designed to test the levers of growth in revenue.
  2. Being a guide through financing to help shape the financial narrative of a pitch deck to an equity investor, lender, or in a sales scenario.
  3. Acting as a sounding board for a board of directors who want to insight from a seasoned finance professional to gut check assumptions and have confidence that the business is operating within a level of financial discipline.
  4. Execute and manage a risk management plan in order to put controls in place as the company becomes more visible in the marketplace.

These examples are only project-based or episodic events. For most companies, certainly those under $15 million in revenue, a CFO is likely overkill, even on a fractional basis. This includes tech start-ups in their Series A rounds of financing.

In my experience, it’s a default reaction to say, “We need CFO support!”, because the language is understood… even though the true utility is not well understood. Unless the company is prepared to leverage the true strength of a CFO, the expense may be emotionally comforting but unnecessary.

This cuts both ways: CFO’s don’t want to be brought in at a high hourly rate to work on general bookkeeping and controller-type work. First of all, it’s below their pay grade, and secondly, it’s boring for them. In other words, the ingredients for optimizing a CFO must be placed in the consideration set of the organization’s areas of responsibilities and where that person fits in at the present moment.

What Most CEO’s are Asking For On a Consistent Basis…

  1. Daily trust and confidence – they want to know their books are being well managed and closed both timely and accurately
  2. Variance explanation – when the company closes its monthly books, how did it perform vs. how it was expected to perform? What are the explanations for that variance?
  3. Actionable reporting – Where do I need to be paying attention? What metrics are out of range?

Many CEO’s want help building their financial model or cash flow models. This is a project that a capable Controller or Finance Director can typically perform depending on complexity. Day to day bookkeeping/accounting and visual monthly reporting? This is something you can outsource to a bookkeeping firm like Stride at a fraction of the cost of bringing the resource inhouse or having a CFO (or their support team) performing it.

There is absolutely a time for full-time, interim, or fractional CFO support. However, for the benefit of all parties, when your instinct is, “We need a CFO!”, use this as a chance to step back and ask yourself what is really underneath the thought.

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