Top 5 Reasons Every Company Needs a CFO

#1    It will save you time!

Having a high-quality Part-Time CFO (Chief Financial Officer) will save you time in many ways.   For example, how much time do you (the CEO) spend each month doing the following activities:  basic accounting activities (paying bills, depositing checks, entering into the accounting software)?  Reviewing the bookkeeper and/or staff accounting entries and reports?  Creating financials, dashboards or financial models and forecasts? Interactions with lenders, investors and your tax/audit CPA, including preparation of reports, getting them return documents, and answering questions?   Dealing with non-core “headaches” such as tax filings, payroll audits, insurance reviews/renewals, benefits, HR, legal, etc.?

Often I hear anywhere from 20-50 hours a month for the CEO on these “non-core” activities.   A Part-time CFO can often do this work more efficiently, with less time and more competence (particularly if the CFO is also a CPA), and in addition provide items that might be missing in the finance function such as a written Accounting
Policies, Procedures, and Internal Controls document, cash and tax forecasting, profitability analysis, general ledger tie-outs and reconciliations, a quicker and more accurate close process, GAAP compliance, due diligence and exit support, consolidated financials and much more.

Acting as a liaison and intermediary with bankers, lenders, investors, tax & audit CPA’s, attorneys, insurance agents, as well as communications with state/federal tax and reporting agencies will also increase time the CEO has to do what he/she does best: grow, improve and brand the business.

#2     It will make you money

Companies that maintain a strong finance department are simply worth more money at time of exit.  Additionally, you will be better able to forecast cash needs and maintain the appropriate and lowest cost of capital as you grow.

A good part-time CFO will likely need to spend 12-16 hours a month for a small to midsize business and can likely free up 20-30 “new” hours of the CEO’s time.  This new CEO time is likely equivalent to or above the cost of the CFO, even before considering added value to the overall business of building a top-notch finance function. Additionally, the CEO will gain non-financial benefits as well such as reduced stress.

A strong finance department is one that includes many or all of these characteristics: produces accurate, timely, complete financial statements that comply with GAAP (Generally Accepted Accounting Principles), a robust Internal Control System including proper segregation of duties and safeguarding of critical assets, detailed Accounting Policies and Procedures, electronic storage of all documents and appropriate hard backup source documents (invoices, sales receipts, bank records, etc.) that are readily available, good dashboard and key performance indicators, timely cash and tax forecasts, and an experienced part-time CFO that assists in design of the systems, reviews the accounting work, financials and forecasts, participates in strategic decisions, acts as a sounding board for tough decisions, and assists as liaison with legal, tax, accounting, audit, IRS, acquirers and other third parties.
A secondary part underlying a strong finance function will be selection and use of the proper software (both operations and accounting) tailored for use in your niche and selected based on size and complexity of your business.

Companies with these systems in place have better access to capital (debt and equity), better reporting and relations with investors, get higher valuations at exit, have fewer headaches during due diligence(for mergers or exits), and can ease the pain of an IRS, State or financial audit (as well as lower the cost of the audit).

#3 Having a CFO on board strengthens Internal Controls

Having a good Internal Control System will increase the value of your business, allow for greater protection of your assets, and ensure that your company can be audited if it needs to be (whether a financial or IRS audit).  An essential part of Internal Control is proper segregation of duties, which means requiring more than one person to complete and review important tasks.  A CFO adds an important layer of oversight and review to the finance function between the bookkeeper or accounting department and the CEO.

#4 A good CFO will help you, the CEO, make better strategic decisions

Accounting is often said to be the “language” of business and yet some CEO’s put low importance on the accounting, finance, and reporting function.   Strong accounting and reporting allows the CEO to know exactly where he/she stands today, to better forecast growth and cash in the next 12 months, to plan for irregular cash payments such as taxes and to better make critical strategic decisions such as opening a new location, making an acquisition, or hiring more staff.   Additionally, it makes it easier to obtain financing from lenders or investors as well as keeping them up to speed with timely financial reporting.

#5 Increase your Value at Exit

At some point, you will likely want to exit your business.  This could be a full company sale, or maybe you just want to buy out or sell to a partner, or perhaps a divorce is forcing an exit, or a death of a partner occurs, or many other possible events.     When this happens, the business will need to be valued and often audited as well and at the very least extensive due diligence.
If you have very detailed, accurate and complete financial records and systems, this will maximize the value obtained.     However, when incomplete or inaccurate items are uncovered, or inadequate internal controls and lack of segregation of duties are revealed, the valuation will start to go down, and the more “issues and problems” uncovered, the steeper the discounts will be on final company valuation.
How to Build a World Class Finance Department So You Can Focus on What
You Do Best:  Growing and Improving the Business

Some CEOs have recently asked me if it is ok to use their tax CPA or bookkeeper for this function?  Sometimes for very small businesses this is an ok solution but for most companies the answer is usually no.  Your bookkeeper is great for day-to-day bookkeeping, but likely does not have an accounting degree or a CPA designation. They will usually not have the ability to produce GAAP compliant books without oversight and will not have the skill set for all of the other value added CFO services.
Your CPA firm is a key member of your team as well and, in most circumstances, you should let them focus on what they do best, which will be your tax returns and audit if required.   Some CPA firms do offer “part-time” CFO services, but generally, these companies bill by the hour (every call), and are very busy so have limited availability to your business.   A part-time CFO should be available week in and week out, can ramp up more time for projects, can offer “fixed fee” billing rather than hourly and will often have actual CFO business experience that many CPA firm personnel might lack.

Do yourself a favor, and investigate adding an Outsourced CFO to upgrade your Executive Team, give you more confidence in your finance department and increase the value of your company.

Andrew Hunzicker, CPA
Andrew@cfobend.com
www.cfobend.com
405-990-4370