Hiring too soon may be costly, leaving excellent individuals with insufficient work. On the opposite end of the spectrum, hiring too late may stifle a company’s growth and cause it to lose out on great opportunities. In this article, Sunbytes will provide a complete report on the appropriate timing for a start-up to hire professional personnel such as a CFO.
Who is a CFO?
CFO is an abbreviation for Chief Finance Officer, which is an essential position in the organization. The CFO is the most important member of the organization’s financial management team.
What is the difference between a CFO and a chief accountant?
A start-up at an early state regularly needs an accountant to take care of all the operations of the accounting department. As the company grows bigger, or when the size of your business is expanded, the role of the CFO becomes important. The key point here is now, that your finance and accounting department will be sized up, and you will not only need accountants but also a CFO to oversee all the financial activities, explained financial choices to the Board of Directors as well as present and enhance the business’s financial picture.
Why is a CFO necessary for a start-up?
In the case of start-ups and SMEs, the Chief Accountant will also be the Chief Financial Officer. The fundamental issue is a lack of financial resources and a small organizational structure. However, in big firms or corporations, these two roles are often separated and clearly defined.
The chief accountant is in charge of the accounting department, which assists the business in tracking spending and costs, as well as monitoring and enforcing credit standards for customers and suppliers on a regular basis. Meanwhile, CFOs often develop and propose the best strategy to optimize the capital of the company in production and business processes, and analyze the market to determine the right size of an investment. CFO also serves as a right-hand man to the CEO and leader in company growth.
Overall, CFO has the main responsibilities as below:
- Ensure that income is received on schedule. The CFO is critical to the financial health of a company.
- Determine what should be prioritized at each given moment, as well as when it is fair to seek funds.
- Maintain relationships with mutual funds and assist the CEO in managing relationships with investors, lenders, and important partners.
- Today’s business is more data-driven than ever before. CFOs examine the data and apply it to deliver business strategy information.
When will a start-up need a CFO?
The complexity of the transactions in the company
Each business has different product types and product lines. If your business sells a digital technology application platform for up to $500,000/deal and each year, you only work with a few clients, probably, your company does not need a CFO. However, to make the same amount of money, another business must sell hundreds of products, requiring multiple transactions and invoices issued. At this point, a CFO is needed.
Preparation for IPO/ Merger & Acquisition
When a business is preparing for a merger or acquisition, a team is needed to evaluate a potential acquisition. In many cases, this will be outsourced and the company will also perform financial due diligence and regulatory compliance. However, you will need a CFO to interpret the reports from the appraisal team to adjust the terms according to the research findings. The CFO must be able to communicate these data to potential investors or lenders. A CFO should carefully prepare and anticipate questions to shorten the process.
When tax planning gets complicated
Corporate integrity is based on a business’s ability to prepare and disclose accurate financial results and to comply with its tax obligations. You may need a CFO if your financial controller can’t afford to do that. According to the CFO hub, it is common for a business to hire a CFO when revenue has exceeded $10 million. High net worth companies often face complex tax laws and regulations. The CFO acts as an advisor and helps:
- Explain changes in the law and what decisions might be beneficial.
- Analysis of tax benefits of investment, capitalization, and M&A opportunities.
- Provide guidance for any financial overlap between owners, shareholders, and the business they own.
- Improve existing tax issues.
- Property construction and maintenance.
When your start-up grows faster and all of the above reasons why a start-up needs a CFO to match the situations of our company, it is time for you to recruit an incumbent for this position. So let’s look at the key characteristics you should look for.
Top qualities that a CFO should have
Deep understanding of Finance – Accounting
The CFO should have experience as a Chief Accountant and is the one who “breaks” the skills of a Chief Accountant such as managing debts – documents – cash flow. To achieve this position, the CFO needs to have exceptional skills in reading spreadsheets, recording documents, and books, reading comprehension, and analyzing financial statements. However, do not forget that the role of the CFO in the new era is to provide financial advice to businesses. This requires the CFO to have knowledge of other areas such as securities, insurance, investment, and real estate.
An ideal CFO is someone who has the concepts and capabilities to plan financial strategies for businesses, who can manage budgets for production and business activities, investment activities, etc.
Therefore, the future CFO needs to practice planning cash flow management, planning and effective use of budget resources for a small organization, while estimating opportunities and risks within their scope
The job of the CFO is not only to handle financial statements, and track and monitor the direction of the use of corporate budgets, but also to act as a bridge for smooth business activities.
Besides, thinking strategically, the CFO also needs to think creatively and update new trends in corporate governance.
That means CFOs need to establish successful communication in a team with CHRO – Human Resources Director, CCO – Sales Manager, CMO – Marketing Director, CIO – Publicity Director information technology, etc. to ensure that the budget for activities is allocated and utilized effectively.
Furthermore, the CFO must collaborate expertly with the CEO, since being a CFO only makes sense when the CFO becomes a trusted partner of the CEO in promoting the balance of sales and the ranking of the business brand.
The shareholders are an important and indispensable partner in the CFO’s daily work because gaining trust from shareholders is one of the important goals that the CFO must accomplish, and in the long run, there will be easier for a CFO when he has to deal with corporate crises, especially in terms of investment capital.
Crisis handling skills
The risks that CFOs face are often related to the work of their team members who are working on the company’s balance sheet and financial documents. He must have the ability to forecast, and mitigate the troubles caused by the inaccuracy in the documents.
Moreover, a CFO also needs to make a balance between the interest groups so that his decisions do not offend the top elites in the cooperation.