I have spoken with enough small business owners to know they don’t understand what role a Chief Financial Officer (“CFO”) would play in their business. Admittedly, the role is not as cut and dry as other jobs they most likely have filled in the past. Small business owners can tangibly see what a sales manager, front desk clerk, or sous chef will be doing. Many small business owners therefore falsely assume that the role of a CFO doesn’t fit their organization….after all, they are not a Fortune 1000 Company, what do they need a CFO for?
I have a belief that small business owners are often on the front line of seeing changes in trends, and some of their thoughts about a CFO’s role only support this theory. The role has been undergoing significant changes. Business media outlets have been starting to examine the shifting role of the CFO. Last October, the Harvard Business Journal published an article about the CFOs changing role. The article begins by saying, “The job of CFOs today is more important and more complex than ever. And the role of the CFO is changing dramatically.”
The article is not wrong. Gone are the days of the CFO only being the head number cruncher, looking at how to finance acquisitions, safeguarding assets, and dealing with investors. Sure, those tasks can be and are still integral to some CFOs success. However, the role continues to morph. CFOs are now being tasked with organizational strategy and leadership over operational tactics to accomplish that strategy. CFOs are task and process-oriented people by nature. Being charged with taking on the process of strategic planning and execution is one that CFOs are well suited for.
For all the great things that small businesses are, development and execution of strategy are not in their strengths. This is often of no fault of their own. Unless a business is extremely well funded (which most aren’t), they are often thinking just about getting through the next payroll. They are so focused on short term goals there can be a wall that blocks them from thinking long term.
According to Score, an organization which mentors small business owners, surveys show most small business owners struggle with being able to think long-term and strategically about their business. Let’s face it, there is often not enough time to do so. When there is time, it is so hard for a business owner who has been in the weeds so much to remove themselves from those tasks and take a critical and long-term look at their organization. However, those that can see the benefits. Score points out an encouraging statistic about long term thinking and strategic planning – 63 percent of small business owners believe visualizing helps them map out and develop business plans.
Here is where small businesses and CFOs converge. Too many small businesses are missing out on growth by not utilizing services that a CFO can offer. While there are a few types of professionals that can help a business create a strategy and the tactics to achieve that strategy, having a professional that has a handle on the companies numbers and can speak to the financial ramifications of certain strategies is invaluable.
All the Reasons Not to Have a CFO (and why they are wrong)
There are plenty of common reasons small businesses reject the idea of bringing on a CFO. As a courtesy to you, I have compiled most of them here. Let’s go through a couple and debunk them.
I don’t have the need for a full-time CFO
Most small business owners are right, they don’t need a full-time CFO. There is no right time to hire a full-time CFO…very few companies wake up one day and magically have 2,000+ hours of work for a CFO.
However, there is an additional option. A part-time or fractional CFO can be the answer for many small business owners. Krieger Analytics provides this service for our clients and will work with a client for as little as 6-8 hours per month. We understand that even 1 day a week may be too much for small business owners.
I Don’t Have the Money to Hire Even a Part-Time CFO
As a business grows, they will find themselves hiring more and more employees that may be classified as “overhead”. If they do too much of this at the start, they may be in trouble. That is because employees should create value for the business. Even hiring a receptionist should enable a business owner or other employees to have more free time to accomplish tasks that more than makeup for the additional cost of the new employee.
A part-time CFO is no different. The skills they bring to your organization and the strategy they implement should more than pay for itself.
This reminds me of every episode of Shark Tank. For those that don’t know, Shark Tank is a show where entrepreneurs pitch their company to a panel of celebrity investors in the hope of getting them to invest in their company. At the end of the day, most of the investors on the show bring tremendous value to the organizations they invest in. Often, an entrepreneur is faced with the decision of giving up more of their company then they initially had planned. In these situations, I turn to my wife and say, “Would you rather have 100% of a small company or 60% of a huge company?”
For small business owners, it is a similar dilemma with a part-time CFO. While you might save money in the short run, in the long-term, the cost of a CFO will more than pay for itself in creating additional profit and value.
A CFO is Too High Level for my Business
I am a believer that businesses are all functionally similar. What I mean is that take a functional unit of a business, for instance, sales. This function is a requirement of any business. Whether you are Microsoft or the neighborhood computer store, you need to have a sales function. Of course, if you are Microsoft, your sales function will look vastly different than the neighborhood computer store. However, the base functions, tasks, and strategies that must occur for sales to be successful are the same, just on different scale. Both Microsoft and the neighborhood computer store need to do prospecting for instance, but it probably looks very different at the two companies.
Similarly, the functional unit of accounting and finance should be comparable in a business of any size. Yes, a small business might not deal with the same issues a larger one deals with. For instance, there might not be investors to be managed or capital to be raised. However, those are tactics to accomplish a strategy. No matter the size of the organization, strategy must be central for it to grow.
Krieger Analytics has outlined what a well functioning small business accounting and finance department should look like. No matter the size of your business, the basic requirements that you need from a CFO, controller, and bookkeeper are the same. The only question is to what scale do you need these functions.
I Manage My Finances Already, I don’t Need a CFO
I have heard this one more than a few times from small business owners. In fact, I was recently at a local Chamber of Commerce event where I was at a table listening to the owner of a printing shop explain to another individual how he “managed the finances”. The printing shop owner had been asked by the other individual if they used a bookkeeper. The printing shop owner said their front desk person handled all invoicing and billing. The owner reviewed their bank account on a weekly basis to determine which bills to pay. The owner also sat down with his CPA every tax season to review the financial statements and what he owed in taxes.
This is not an effective finance function or even close to it. To start, I have been in those yearly meetings with a client to discuss their tax return and financial statements. This meeting is usually nothing more than discussing estimated tax payments for the upcoming year. Any owner that is relying on this meeting to produce insight into their financial statements will be disappointed.
The owner never mentioned anything about strategy, reporting, controls, processes, or any of the other functions a finance and accounting department should provide. Owners are often too busy managing everything else in the business to add the finance and accounting function to this. This is only compounded when an owner with no education or background in the finance and accounting function tried to take it on.
What Is the Right Solution?
Every business needs functions performed at some level that would normally be performed by a CFO, Controller, or Accountant/Bookkeeper. However, most small business owners don’t require 40 hours of work performed by anyone those roles on a weekly basis.
Many small business owners go one of two routes. The first route is they hire a bookkeeper. While I have met many great bookkeepers, to expect one to perform CFO or Controller level tasks is asking too much. Quite frankly, this is not their skill set. They are great at making sure the books are in good order, but they are not skilled enough to perform analysis or strategy related tasks.
The second route is that owners themselves act in these roles. I have seen owners who have sales, marketing, or other non-related backgrounds act as their own CFO. This is the equivalent of calling a plumber to install an electrical outlet. No normal person would do that, so why do they then act as a CFO for their business when they have no relevant experience? Odds are, it is because of one of these reasons listed above.
The best solution is to get the right amount of each role that you need for your business. You can often do this through the use of outside professionals. Outside professionals often care even more about your business then a internal bookkeeper because the results are a reflection on them. They care about their client’s success. The great thing is, for the cost of a full-time bookkeeper, you can get the expertise you need across the board (and often, for less than that cost).
Krieger Analytics is a unique accounting practice that is looking to provide financial clarity and be the strategy owner for the business owner so they can accomplish their goals. We aren’t the typical accountant as we want to provide a high, more comprehensive level of service to you. We help you understand your past results and plan more for the future. Unlike most accountants, I am also a small business owner so I understand the issues you are dealing with. If you would like to discuss your business and see if we may be the right solution, contact us now.