Maybe.
All businesses need some kind of financial process and strategy and a financial strategy partner (either a CFO, financial advisor, or even a financial analyst). It doesn’t matter if you are starting with $0 in revenue or $100M - financial strategy is the key to knowing where and how to spend money to get more money (revenue). Businesses with CFOs typically outperform those without and sell at a higher value
What does a CFO do?
A CFO is an executive that manages all the business activities related to the business’s finances. While the day-to-day of what a CFO does heavily depends on the company’s size and financial complexity - the CFO is the right hand of the CEO and guides all financial decisions for the business. CFOs for small to mid-size businesses create processes, build budgets, and direct strategic decisions using financial insights. CFOs drastically increase your business value because they're constantly focused on increasing revenue, optimizing expenses, and cash flow – all key things that increase your business’s value.
Other tasks a CFO could handle include:
> Cash flow management
> Expense optimization
> Using financial insights to steer the business in the right direction
> Manage the finance, bookkeeping, and tax accounting teams
> Investor Relations
> Revenue generation strategies
> Business valuation
How is a CFO different from other financial services?
There are 3 main pillars to the finance world - and a lot of overlap and blurry lines - they are: bookkeeping (aka accounting), tax accounting (aka also called accounting or CPA), and finance (aka CFO, financial analysis). The KEY difference between simply having a bookkeeper and tax accountant vs. having a CFO is that the CFO is focused on the forward-looking strategy of the business and acts as the right hand of the CEO for key business decisions. Finance is the creative activities that come from the bookkeeping data.
Easier said: Bookkeeping = Backwards looking record keeping and Finance = forward-looking analysis and decision making.
What kind of Financial Strategy Partner do you need?
A lot of this depends on what you need for your business. Most businesses under $500K in revenue will be just fine with a non-CFO resource to help with business strategy - sometimes this looks like an outside advisor that works in finance in their day job, sometimes it’s a knowledgeable CEO with a background in finance, or a friend you can turn to with finance questions. The main reason for this is that sometimes there just isn’t enough activity for a business of that size to make the cost of a fractional CFO worth the expense. There are some good bookkeeping firms that also offer a full controller and/or Financial Planning & Analysis support- this is what I would recommend for businesses under $500k.
Once a business gets into the $500K - $2M in annual revenue (still heavily dependent on the business activities), it’s time to start formalizing that CFO relationship. Often, this can be as simple as getting processes in place, upgrading your bookkeeping, and hiring someone to chat with monthly or quarterly about key strategic decisions in your business. The reason for this is simple - at this point, the CEO is typically starting to operate solely as a CEO and can no longer identify all the dollars in and out of their business; so processes need to be created to avoid things like- mismanagement of funds and God Forbid- Fraud. Getting a CFO now is a great step, and there are plenty of fractional firms that can be suited exactly to the needs of your business.
If you’re over $2M - yes, you need a fractional CFO. Sure, there are plenty of well-run businesses that are well into $30M that have operated with a controller in place and have done VERY well - these businesses are the exceptions to what typically happens in the real world. The ones that haven’t - likely needed financial support well before or they have simply never been able to reach that level.
How do you know you’re ready?
To determine if you are ready to hire a fractional CFO consider these questions:
You have raised a large amount of capital
You plan to raise a large amount of capital
You are considering debt financing
Your cash flow is struggling
You are in the process of or planning to scale your business at a pace you haven't achieved before
You are considering selling - even if it’s 10 years out!
Where do you find the right CFO?
Not all financial strategies will be the right fit for your business. Like any hire- before you start looking, know what you need. What kinds of people do you like to work with? How do you want to work with them? What’s your budget - how much are you willing to invest in this process?
If you are at $0 in revenue - get someone on your side who understands strategic decision-making - and teach yourself. A lot of it is learning over time and by trial and error.
If you're ready for a CFO, ask your network for referrals - or better yet- check out Copper8 Strategies. My firm, Copper8 Strategies, is a fractional CFO firm that services business owners who are scaling and thinking about selling. We may not be the right fit for you- but we know other CFOs who might be. Contact us here
Some of the biggest success stories that our clients have had are:
> Owners pay themselves a good salary
> Increased business valuation
> Confidently making tough decisions knowing they have a supportive partner guiding them
> Getting debt under control
> Peace of mind that the right process and procedures are in place to protect their business
Not all businesses need a CFO. ALL businesses need finance. Businesses with a CFO are much more likely to be successful, less likely to have fraud and mismanagement of cash flow, see an increase in their net income, have higher owner pay, and scale and sell faster. All of these will get you to a higher value, higher owner pay, and less risk.
