The CFO can be very detrimental to the growth of the company.

Although a small business owner is usually considered its CEO, not every small business has a CFO. This missing link can be very detrimental to the growth of the company.

A CFO’s job is a very critical and complex one. There are three main duties for every CFO: controllership duties, treasury duties and economic strategy and forecasting. A great CFO not only performs these functions well, but is also a key member of the management team, helping to ensure the company remains profitable, efficient and poised for long-term success.

Duties of the CFO

• Controllership duties: In the role of the controller, the CFO is responsible for accounting and financial reporting roles. These duties can include handling mandatory financial filings and preparation of financial statements.
• Treasury duties: These include the investment of cash on hand and management of excess cash flow, management of liquid and non-liquid corporate assets, banking relationships and protection of the ownership of the business, including succession planning.
  
• Economic forecasting duties: In this role, the CFO helps create business plans, performs short- and long-term financial and cash-flow planning, analyzes cash needs and usage, and authors growth strategy as it relates to the capital needs of the company.
  

The CFO needs to be innovative, creative and able to add value to all areas of the company, whether in operations, production or sales and marketing. “Our CFO provides very valuable analysis for myself, our general manager, and our department managers,” says Valerie Overheul, president/CEO of Summit Training Source, a Grand Rapids, Mich.-based provider of environmental, health and safety training programs. “Our CFO is part of the management team and is involved in reviewing contracts, strategic planning and [serves as a] liaison with our CPA firm and tax consultants. We’ve been in business for almost 28 years, and have had a CFO for the last 16.”

Depending on the size of the company, the CFO may perform all three key roles on his or her own or may supervise a staff of employees who perform these roles under the CFO’s supervision. “Our CFO is responsible for supervising accounting staff who update accounts payables and accounts receivable tasks,” Overheul says.

The Missing Team Member
Unfortunately, too many owners are unaware of the value a CFO brings to the organization. When owners see that money is coming in, the bills are being paid, checks are clearing the bank and the accountant can prepare the company’s tax return, they think all is well. In addition, most owners are wrapped up in the day-to-day operations of the company and don’t have time to look long-term at the company’s growth and stability. They’re too busy working for the company to work on the company. However, this approach leaves valuable money on the table.

In companies that function without a CFO, the CEO, a bookkeeper, controller or outside CPA may handle some of the CFO’s roles. However, the limited financial analysis and reporting these professionals provide is only a fraction of what the management team truly needs. “Early in our history, and before we required the sophistication of managing multiple projects and budgeting for each department, we utilized a CPA firm who provided consulting on tax issues and prepared financial statements such as an income statement and balance sheet,” Overheul says.

Financial reports are a scorecard for how the company performed in a given time period. If these reports – often in the form of a financial dashboard – aren’t produced monthly (and in some cases daily), then management cannot make the quick, informed decisions it needs to survive in today’s multifaceted environment. Key questions go unanswered. These include:

• Where does the company stand from a break-even standpoint?
• Can management afford to discount services and thereby increase sales?
• Can the company take on new projects?
• What cash is available for long- and short-term capital needs?

If owners and their management teams can’t answer these questions, they are at a significant disadvantage. 

Information is crucial to success, and without access to it, those who hesitate lose. They miss opportunities, experience inefficiencies and fail to make small changes and tweaks to the business to maximize profits. Even worse, problems can crop up without the knowledge of management, such as embezzlement, multiple sets of books being kept, lack of inventory control and theft, bills not being paid, receivables going uncollected or change-orders being paid under the table. 

Bringing A CFO on Board
When hiring their first CFO, companies often bring in someone from their accounting firm who may be familiar with the organization on several levels. Or, an employee may move upward from an accounting or controller position within the company to assume CFO duties. Additionally, companies can always hire an experienced CFO from another firm. Typically, a CFO will have an accounting or finance degree and possibly an advanced degree or professional certification.

The right educational background and professional certifications are important for several reasons. First, the CFO needs to be a subject matter expert in numerous areas, from accounting and payroll to finance and wealth management. The CFO has to hit the ground running, and his or her only learning curve should involve understanding the ins and outs of the particular company. Second, a professional certification – such as Certified Public Accountant or Certified Financial Planner – helps ensure that the CFO has met industry standards for experience and knowledge and operates in an ethical manner.

Because the CFO is part of the senior management team, compensation should be incentivized and tied to the overall success of the company. The CFO’s goals need to be aligned with those of the owner. When the profitability and cash flow position of the company are in the best interest of the CFO, it represents a win-win for all. 

To ensure the CFO is performing in a responsible, legal and ethical fashion, owners need to put checks and balances in place. For example, an outside firm might perform an annual audit or review of the company’s books. Also, management can split financial responsibilities among the company’s staff so that one person doesn’t control the flow of all the money. In this way, multiple employees form an internal system of checks and balances that guard against theft, overpayment and other problems that plague companies without a CFO.

Ignorance Is Not Bliss
The CFO can be a valued member of the senior management team, identifying opportunities and potential threats that might otherwise go unnoticed. Unfortunately, many owners feel that ignorance is bliss when it comes to the true state of their finances.

Just as avoiding a trip to the doctor won’t prevent illness, staying in the dark about your company’s finances won’t prevent serious financial problems. Smart owners will pull their heads from the sand and address financial realities head on – and they’ll sleep easier at night knowing they have a trusted and experienced professional keeping an eye on their bottom line.

Gregg Steinberg is president of International Profit Associates (IPA) Inc. IPA and its related companies provide comprehensive business consulting and business valuation services to companies in the United States and Canada. For further information, call 847-495-6786 or visit www.ipa-iba.com.