In late 2019, I had coffee with a father-son ownership team for a Denver-based food manufacturer. It was a casual coffee that I attended as a friend who was looking to invest in their company. While they firmly believed in the product, they had questions around their strategic direction. During this discussion, I suggested looking into an outsourced CFO and the advantages of having one.
The conversation was friendly, but at one point, the dad said, “We don’t need a CFO. Our CPA takes care of most of that.” Being that I had worked in two different accounting firms and with clients as an outsourced CFO, I have an idea on what CPAs can contribute to business owners.
Like many other business owners, the father-son team had a misunderstanding of what their CPA was doing for their business. In the past, I had talked with several owners and this misunderstanding was common. The fact is, the finance, strategy, and accounting side of a business is often a black box for owners. They know that these functions exist, but they don’t understand how they work. A report shows up every month, and that is that.
Your Accountant Isn’t Your CFO
Business owners are given the idea that their CPA is doing an in-depth strategic process into their finances during their tax return. Based on my experience working in these CPA firms, a comprehensive process to the extent they believe is not happening.
I have been lucky to work at two firms with high integrity and a desire to offer more than just tax services. A lot of owners would be shocked at what is happening a majority of the time. Many in the profession take your business’s numbers, pop them into their tax software, and issues a return. At the two firms I was at, this was not the case, which leads me to writing this article.
At many firms, the tax preparers often pepper the owner with questions so they can make sure numbers are classified correctly. The CPAs then check that balances were reconciled, and the owner had taken reasonable care to account for all relevant transactions.
With this process, business owners often get the impression that more is going on than is. Sure, sometimes the tax software spits out fancy reports comparing year over year, but there isn’t a ton, if any, analysis going on. Most CPAs don’t spend enough time with their client’s financial statements to dream up strategies or identify red flags.
Whenever a small business owner tell me their CPA is their outsourced CFO, I shake my head.
What Your Accountant Isn’t Doing
Part of the problem with the CFO role is that most small business owners don’t know what they do.
What does a marketing manager do? They post to social media and run campaigns.
What does a salesperson do? They visit potential clients.
What does a CFO do? Umm….financial stuff.
CFOs have three critical roles in companies…finance, strategy, and operations.
Within the 1,000 largest U.S. public companies, the portion of CFOs who are certified public accountants fell to about 36% last year, according to data from organizational consulting firm Korn Ferry. That is the lowest figure in the past six years Korn Ferry has been collecting the data, down from 46% in 2014.
Despite larger companies veering away from the accounting background in CFOs, this doesn’t make a lot of sense for small business owners. Small business owners have the financial resources to make one good hire. Often, this hire is in the form of an outsourced CFO.
Small businesses don’t have the same resources larger companies do. These larger companies can hire a team of accountants to support a CFO who may not love debits and credits. Having a strong accounting and finance background is still important for small business owners.
So what else does a CFO do?
A CFO is also in charge of an organization’s strategy. Think of strategy as the operating system of a business. The CFO is not in charge of coming up with every aspect of that operating system. However, they must be in charge of implementing the process to design the operating system.
The CFO is in charge of making sure that the organization’s goals align with the core focus and values. Further, the CFO must be able to adopt strategies across the organization. The CFO is in charge of making sure that each function of the organization has the right people in the right seats.
Lastly, the CFO is in charge of designing processes for the organization. Businesses are a collection of processes. However, for small business owners, these processes are often lacking. They operate by the seat of their pants. This creates waste in the form of time, money, and effort. Organizations with a CFO often are described as “efficient” and “aligned.”
So…. Is Your CPA Enough?
A traditional CPA does a few things for you. First, your CPA is delivering a tax return to you every year. They also most likely get on the phone and discuss how business is going a couple of times per year. Sometimes you may eve get a snazzy report out of their system that may show some analytics.
If you’re lucky, some companies even have their CPA review their financial statements quarterly or bi-yearly. This review is often entirely accounting-related to make sure the books are correct. You’re CPA might try to meet with you, but you probably only take the meeting once a year. Otherwise, you are too busy (this is perhaps due to the meeting not providing much value).
Maybe you feel this process (or the parts of this process that apply to you) is enough. However, for businesses that want to grow or attract investment, this process doesn’t come close to what an outsourced CFO provides. If you are looking for process improvement, strategic alignment, and financial clarity and direction, then you need to talk with an outsourced CFO solution.
If you’re new here…
My name is Matt Krieger, and I am the founder of Krieger Analytics, a CFO advisory partner for small businesses and franchisors. I am also the owner and franchisor of a concept called Monkey Bizness, in Denver, Colorado.
As a small business owner with a background in finance and strategy, I realized the benefits that a CFO could bring to smaller organizations. Most franchisors and small business owners don’t have a need (or budget) for a full-time CFO. To better fit my clients, Krieger Analytics is a part-time resource. While most think of CFO’s being involved in finance and accounting (we are), I am also involved in much more. I partner with my clients by coaching them on strategy, gaining clarity on their business, building efficient and effective processes, and making confident business decisions. Conversations are free, so don’t hesitate to reach out to me at [email protected].