Small Business

Do Small Businesses Need a CFO?


A chief financial officer, or CFO, is a company’s senior executive who is in charge of handling all financial activities. This may include handling cash flow, cash planning, forecasting, and accounting. Furthermore, this person oversees the accounting department and ensures that taxes and reports are submitted to the proper authorities promptly. However, because of capital constraints and size, many small business owners take on these responsibilities. Initially, the simplicity of tasks given the organizational structure lures entrepreneurs into handling their own financial matters. Nevertheless, as the business grows, the activities become more complicated, and executives are not prepared to handle convoluted financial affairs. Before knowing if a business will need a CFO, it is important to understand the distinction in the functions of all individuals involved in the financial matters of an organization.

Who are these people?

Companies with few employees work much differently than large organizations. One distinction is that the roles of employees often involve multiple activities. Therefore, entrepreneurs running a growing business need to optimize their human resources and should look at specific functions differently to gain an understanding of how a company can grow. For example, bookkeepers handle the basic accounting function of the organization and should provide profit and loss and balance sheet reports. This may differ from larger businesses. Nevertheless, in a small environment, these individuals will need to provide the function. As companies grow and require multiple bookkeepers, they may need an accounting manager. This person will manage the accounting personnel and can help with tax planning, payroll, payables, and financial reporting. These individuals generally obtain assistance from third parties for non-core functions and may outsource payment processing.

As a small company continues to thrive, the role of a controller to oversee all accounting practices and handle policies will develop. This person will provide business owners with a deeper knowledge and understanding of financial matters. Ultimately, a business grows enough to warrant a specialist in understanding business models, handling banking relationships, preparing detailed financial reports, managing auditors and a board of directors, and planning tax, among many other activities and functions. This person is the chief executive officer. Small business owners can look toward cfo advisory services to gain a better understanding of their business requirements and determine how to best handle organizational growth.

What indicates the need? 

Revenue figures alone are not a good indicator of need. The complexity of the business processes is not necessarily reflected by sales revenue. Generally, a solid indicator that it is time to hire a CFO is when information that the business needs to make timely decisions is not available or prepared.The chief executive officer must rely on bookkeepers, their startup tax advisor, and other accounting personnel to interpret results of financial statements, measure costs, analyze capital acquisitions, consider government regulations, and think about long-term economic matters. Therefore, if the information is not available, the problem might be with the oversight of the process or a lack of understanding. With a CFO, such matters should be resolved given the clarity of a good hire.

Another sign that it may be time to hire a CFO is when the company is growing too rapidly. The reason is that fast growth requires automation to handle such growth and needs to be facilitated by capital and financing capabilities. Having a CFO provides respect outside of the company, and a business will need this when looking for additional funding. Furthermore, certain processes require financial oversight and are regulated by government agencies. Therefore, organizations that are looking to get acquired, going through an initial public offering (IPO), or are preparing for a merger will need a chief financial officer.