The Importance of Hiring the Right CFO for Your Business

By Neil A. Sonenberg  |  November 22, 2019

The role of Chief Financial Officer (CFO) at a company is very critical, influential and prestigious. As the CFO has the important responsibility of managing a company’s finances, the selection of such a senior executive requires careful consideration. This article provides guidance in selecting a CFO and other key financial officers for an entrepreneurial family-operated business at different stages in the business lifecycle.

WHICH ROLE IS MOST APPROPRIATE?

As the complexities of the business world continue to compound daily, the question that arises for an entrepreneurial family-operated business is whether a strong bookkeeper, a Controller or a CFO is required to manage the company’s finances.

When deciding which role is most appropriate, the following issues should be considered:

• the size of the company in terms of sales and number of employees;

• whether larger financing transactions are required;

• whether mergers and/or acquisitions are being contemplated;

• whether large capital projections or budgeting are being contemplated; and

• the sophistication of the financial statement.

Generally, new businesses will be able to adopt simple financial systems to meet their goals in financial reporting. They will usually have a bookkeeper for their financial needs and use a simple computer system.

The requirements for financial leadership evolve as companies expand, and a Controller or a CFO may be needed at a certain point in the business lifecycle. What are the differences between the two positions, and when does a company perhaps need to fill both positions?

 Filling both positions concomitantly is somewhat of a rare occurrence, as companies usually grow into different “need” levels once “events” occur during business cycles. When economic/financial data is not complex and decisions are not riding on every financial breakpoint, then the hiring of a Controller would be a more appropriate choice. As the company becomes more sophisticated and relies more heavily on data for financial decisions, the dual combination of Controller and CFO may be needed.

RESPONSIBILITIES OF A CONTROLLER

A Controller’s responsibilities usually include:

• managing the accounts payable and accounts receivable cycle;

• making sure bank reconciliations are don eproperly and timely;

• reviewing books and records and ensuring all adjusting journal entries have been appropriately made and recorded timely;

• working with an accounting firm to prepare the financial statement and corresponding tax returns by getting trial balances in the appropriate form along with a variety of other items required for the tax return;

• interfacing with a financial institution or attending formal meetings; and

• assisting management in financial decision-making, including where to allocate financial resources.

RESPONSIBILITIES OF A CFO

The CFO will normally:

• negotiate formal covenants with a bank;

• direct corporate staff (under his or her supervision) to prepare the financial statement for the outside accounting team to do the attest work;

• regularly inform the Chief Executive Officer of what is occurring from a financial perspective, including how the company is performing financially, whether the company is meeting its budgetary forecasts, and whether there is an erosion of gross profit or improvement and why;

• determine whether financial ratios are being met;

• ensure that a proper accounting system is in place that safeguards assets, determines whether a manufacturer is recapturing overhead to inventories, and ascertains that inventories are processed properly and products not thriving are removed from inventories, reducing overhead costs of storage;

• interface with an outside audit committee to address their specific concerns;

• help raise cash for investments;

• lead a team in a potential merger or acquisition; and

• manage human resources and technology.

Essentially, a true CFO brings a completely different level of skill to the company, having deep accounting and finance knowledge and great managerial skills to help implement and meet financial goals. The CFO should also be unflappable and comfortable connecting with all levels within an organization.

CFO JOB DESCRIPTION

The company should formulate a suitable job description for a CFO who can assist in growing the company’s bottom line. The following is a typical position request for a CFO of an entrepreneurial family-operated business:

Position Requires: A seasoned professional with at least 10 years of experience in all aspects of real estate. Skills and relevant experience include:

• CPA and MBA in Finance – Having these credentials usually indicates a more seasoned, thoughtful and creative individual.

• Ability to analyze data using abstract thinking to assess a problem and propose a viable solution – The CFO should be able to examine critical areas of business in a multi-dimensional approach, looking at all facets of a particular issue and producing solutions.

• Ability to interact effectively with all levels of personnel – A CFO needs to have a congenial personality so he or she can interact well with all key individuals within an organization and help to create a team environment.

• Expertise in leading a Mergers and Acquisitions team – A CFO needs to be able to review financial data and determine whether it makes sense to allocate resources to pursue a business or a segment of a particular business to enhance the profitability of the corporation.

• Ability to raise funds for a merger or expansion – After determining it is sensible for a corporation to pursue a certain acquisition, the CFO needs to develop a plan to fund such an expansion. This will require a further refinement of budgeting or forecasts and perhaps the development of an innovative “road show” to seek out funds from outside sources. Accordingly, CFOs must have a certain sense of salesmanship within their arsenal of attributes.

FINAL THOUGHTS

By engaging in a sophisticated hiring process, guided by trusted advisors who can develop an appropriate analysis, an entrepreneurial family-operated business can evaluate a potential candidate within an appropriate scope, measuring everyone equally against such criteria. It is essentially developing a business plan for a human being. This process could save thousands of dollars in headhunting fees from recruiting agencies that are not as attuned to the inner workings of the company. In many instances, firms delegate the hiring of a CFO or Controller to their accounting firm as the firm is more experienced in these hiring processes.

Every company, no matter how large or small, needs someone to handle its financial affairs, and selecting the right professional to do this is one of the most important decisions the company can make.

About Neil A. Sonenberg