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Managing staff and resources is crucial to any business. The overhead from having superfluous positions can hamstring a business while the market is slow. On the other hand, having too few employees on board can stunt growth when a business starts humming. No areas of business are less immune to these concerns than a financial team, where the company's money meets the road. Does your company have the adequate resources to handle tax planning, capital raising, cash management and all the other financial functions of a company? Or more simply: Is it time for your company to get a CFO?
Human resource experts and accounting firms alike are all clear on the subject: It's an issue to be ignored at a company's peril. "If a business doesn't have the resources to raise capital when it needs to, manage tax situations effectively, or execute increasingly complex accounting issues [such as] revenue recognition, then they could run into some serious problems," explains Calvin L. Hackeman, a partner at Grant Thornton LLP, a large accounting firm in Chicago that serves both small and midsized businesses.
So how do you know when those issues become so important and time-consuming that you need to bring someone in-house to manage them all? Of course, it varies from company to company, but answering some fundamental questions may indicate it's time to offload the work from an accounting firm and load it on a new staff member.
Q: Is the bill from your accounting firm surpassing the salary for a seasoned financial manager? Most entrepreneurial businesses turn to accounting firms for everything from taxes to raising capital, at a price tag of at least $150 an hour. "A good financial strategist will cost at least $90,000 a year, so do the math," says Steve Enright, president of SJE Partners, a Richmond, Virginia, HR consulting firm. In his 27 years of experience in human resources, he says the arithmetic adds up for companies making in the eight digits in annual revenues.
That might not be the case, however, if you answer yes to the next few questions about your company.
Q: Do you need to raise equity capital to fund further operations? According to Hackeman, if your business wants to go beyond just regular bank loans for funding to the likes of VCs, private investors, the public markets or anyone else looking for a piece of the company, then it may be time to bring in a full-time financial expert. This requires business plans, detailed financial analysis and people who know people. "These types of fund-raising efforts can get complicated, and they stay complicated," he says, "so we often recommend that a company hire a CFO or a senior financial strategist to help manage the process."
Q: Is your company beginning to do complicated financial transactions? While raising capital can certainly get complex, there are other financial factors that can drive an entrepreneur to seek out a full-time financial advisor. One may be that his or her company is in the pro-cess of buying other companies, which often requires a degree of financial sophistication beyond the means of the entrepreneur.
Another is that your business is beginning to set up deals with suppliers, customers or both that demand financial structuring outside the realm of common sense. True, an accounting firm or investment bank can be hired to handle these financial needs when they first occur. "When they reoccur," says Enright, "in-house financial advisors may be more necessary."
Answering yes to any of these questions may not require you to go out and hire a CFO tomorrow. But it could indicate you're moving in that direction. "It can be a tough decision to bring in a senior-salary employee," explains Enright. "But the important thing is that a company has a plan so they have the proper resources [when the time comes]."
David Lipschultz has written for Forbes, The New York Times, Smart Money and many other publications.