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When Do Companies Need a CFO

Much as entrepreneurs want to handle all their operations by themselves as they launch a business, financial jargon has a way of spiraling out of control. Experts like CFOs are necessary to hire at that point.

If you’re wondering when exactly you should involve a CFO to lead your company’s financial operations, let us help. In this article, we’ll discuss when companies should get a CFO in light of a CFO’s responsibilities.

What is a CFO?

A CFO – Chief Financial Officer – is the leader of a company’s finances. They monitor and analyze a company’s financial standing and cash flow and advise the CEO and business owners about relevant decisions. They are also in charge of accounting and finance departments, laying out procedures and policies for teams to follow.

What Are the Responsibilities of a CFO?

CFOs aren’t merely for supervision purposes. Instead, they proactively analyze data to devise strategies to improve a business’s financial standing and mitigate risks. They serve to give CEOs a reality check on investment plans by reporting the current and predicted finances concerning the CEO’s ventures. They have to be able to lead, communicate, forecast, and strategize.

Some key responsibilities of a CFO include the following:

1.- Strategizing and Forecasting: The critical roles that differentiate CFOs from other financial officers like Controllers are strategizing and forecasting. Instead of merely safeguarding the company's current financial situation, CFOs analyze how sustainable the company's financial standing is and work on strategies to improve it in the long run. They will devise budgets in line with the company’s plans as well.

A CFO will work toward identifying and minimizing risks for the company and also identify the most profitable investment opportunities for the business. Here, they hold more sway over executive members like the CEO than, say, a senior accountant. CFOs ultimately need to link a company’s strategic goals with its financial objectives and communicate their findings and conclusions to the CEO.

2.-Supervising Finance and Accounting Teams: Ultimately, all finance and accounting teams have to report to the CFO through controllers and senior accountants. The CFO lays out policies and methods that must be followed and standards that must be upheld and ensures their implementation. They train the relevant teams as well.

Alongside this, a CFO will also monitor and approve AP, AR, payrolls, etc., to ensure they are adequately recorded and paid timely.

3.- Internal and External Reporting: The CFO has to present financial reports to internal stakeholders, like the CEO, to keep them up-to-date with the company’s position. They have to inform the executives about their analysis, give insights, point out trends and potential risks, and comment on the stability of the company’s finances. They’ll foster dialogues between finance and operations so that a robust financial model backs up all decisions of a company.

It also falls on the CFO to ensure that their reports and records are maintained per international accounting standards and legal and regulatory requirements. They have to correspond with and facilitate external auditors as well.

When Do Businesses Need a CFO?

Younger startups and smaller companies can often do without hiring someone to forecast and strategize for years to come; bookkeepers and controllers suffice for them initially. But as they expand their operations, they’ll need a CFO.

A company will need a CFO if its revenue is overgrowing, it’s considering expanding and entering new markets, it’s working toward a merger or acquisition, or it’s moving toward an IPO stage. Additionally, businesses that now require visibility and strategy through forecasting and developing a growth model, identifying their productivity bottlenecks, or streamlining an increasingly complex tax filing process need a CFO.

Let’s discuss some of these situations in light of a CFO’s role and responsibilities.

- Rapid Growth: With growth comes an increase in the complexity and obscurity of processes.

When a business sees rapid revenue growth, it needs to ensure it utilizes the opportunity, arranges funding to keep operations going, and eliminates the hurdles that can break the momentum. Here, a CFO will interpret the growth in terms of market trends, devise strategies to ensure its perpetuity, decide on the optimal allocation of resources and capital, and work on finding sources like investors to keep operations improving. They will identify risks and navigate through the complexity of the process, ensuring that the company’s momentum is leveraged to its max instead of letting it die out.

- Expansion and Mergers and Acquisition: If a company plans to diversify its products and services to capture more markets, it needs a CFO. A CFO will reign in unrealistic, unprofitable goals on time by elaborating on the company’s current financial standing and providing numerical, insightful forecasts relevant to the plan. They will discuss market trends and highlight profitable opportunities and possible pitfalls to ensure that the business proceeds in an informed, well-calculated manner.

Similarly, a CFO will communicate between any external team and the internal stakeholders regarding mergers and acquisitions. They will provide insights on the feasibility and necessity of such projects to ensure that the business continues in an informed manner.

- Troubleshooting and Strategizing : Though businesses initially expect their controllers to provide meaningful forecasts and strategies, it quickly becomes apparent that those are not a controller’s responsibilities or areas of expertise. So, if a company is looking for a business partner to understand their current margins and financial data and build their financial growth strategies, a CFO is necessary for them.

CFOs are also the personnel to approach when a business fails to meet its growth goals and needs to troubleshoot its operations and find a way to best allocate its resources. A CFO possesses the experience to highlight the problems and holds the authority and sway to challenge the current processes leading to those issues, even if they’re the CEO’s decisions!

- Moving Toward an IPO: Complexity increases tenfold when a company moves toward the IPO stage, so a CFO’s role becomes critical. They need to ensure the finance team has the necessary IPO-ready technology and technical expertise and includes well-trained financial planning and analysis (FP&A) professionals and tax professionals for the transition.

Controls and reporting procedures become complicated as a business goes public, so the CFO has to lay down a strong framework for internal management and prepare for external audits. Alongside this, they have to translate the numbers into discussions and insights for the company’s other stakeholders. All this is simply not achievable without a CFO.

Do You Really Need a Full-Time CFO?

Though a CFO’s services are irreplaceable when the time comes, they also come with a heavy salary tag that many businesses can simply not afford. As not having a CFO is simply not a feasible option in certain situations, companies can opt for a smarter route: an outsourced CFO.

It’s highly likely that you will not require a CFO’s services 24/7 initially, so why pay for all of them? Outsourcing to a company like Trusteer can solve your dilemma.

Outsourcing the Financial Team to Trusteer

Whether you want a CFO or a package that includes bookkeeping, financial controlling, and CFO services, we at Trusteer will have a flexible solution. Outsourcing will let you cut the cost by more than half, and our industry-leading experts will be there to help you as you slowly transition to an in-house team.

Contact us today if you need consultancy regarding the matter.



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