When to Hire a CFO: An In-Depth Guide for Business Owners

When to Hire a CFO: An In-Depth Guide for Business Owners

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As a business owner, you wear many hats. You are the CEO, the marketer, the salesperson, the accountant, and the janitor. As your business grows, you may need help to keep up with the financial side. 

This is where a CFO, or Chief Financial Officer, can be a valuable asset to your team. In this blog post, we’ll explore the signs that indicate it’s time to hire a CFO.

What Is a CFO?

A Chief Financial Officer (CFO) is the business executive responsible for a company’s financial health. They oversee the company’s financial planning, operations, stakeholder reporting, risk management, financing, accounting, and reporting.

Signs It’s Time to Hire a Fractional CFO

If you are ready to scale your business, it may be time to hire a fractional CFO. If the following statements apply to you, then consider hiring one:

Your Business is Growing Rapidly

When your business is in its early stages, you can handle all the financial responsibilities yourself. But as your business grows, so do the financial complexities. 

You may need help managing cash flow, analyzing financial statements, and creating forecasts. If you’re experiencing rapid growth, consider hiring a CFO to help you navigate the financial landscape.

You Need to Raise Capital

A CFO can be an invaluable asset in raising capital for your business. They can help you create financial projections and support your story with data. Additionally, they can analyze the feasibility of different funding options and help negotiate with potential investors.

A CFO can also help you prepare your data room including financial documents that investors require, such as financial statements including balance sheets, cash flow statements, and profit and loss statements.

You’re Considering Mergers or Acquisitions

Mergers and acquisitions can be complex and risky endeavors. If you’re considering entering a merger or acquisition, a CFO can help you navigate the deal’s financial aspects.

They can help you analyze the financial health of the other company, create a financial model for the deal, and negotiate the financial terms of the agreement.

You’re Struggling With Cash Flow

Cash flow is the lifeblood of any business. If you’re struggling with cash flow, a CFO can help you identify the root cause of the problem and create a plan to improve it.

They can help you create a cash flow forecast, manage your accounts receivable and accounts payable, and negotiate with vendors and suppliers.

You’re Spending Too Much Time on Financial Tasks

As a business owner, your time is valuable. If you find yourself spending too much time on financial tasks, it’s time to consider hiring a CFO.

A CFO can assess the day-to-day financial responsibilities, such as bookkeeping, financial reporting, and tax compliance, to establish the right team and process to meet the evolving needs of the business. This will free up your time to focus on growing your business and pursuing new opportunities.

You Need More Support in the Finance Department

Your company has grown so much that your bookkeeper or Controller can no longer handle its financial needs or are over their heads. Other departments within the organization may need more support to manage their budgets and ongoing performance (ie, sales rep productivity).

The Pros and Cons of Traditional CFO Alternatives

There are many advantages and disadvantages to hiring a traditional CFO, but there are also alternatives that may suit your needs. Here’s a breakdown of the pros and cons of each option:

Accountant or Bookkeeper:

The most obvious alternative to hiring a full-time CFO is to hire a more junior team member and ask them to contribute in a more significant role. This might be an accountant or a bookkeeper.

  • Pros: Cost is less than hiring a full-time CFO They may be ideal if the need is more tactical bookkeeping and financial reporting than a strategic finance leader.
  • Cons: You will have little strategic support from this person, so you’ll have to continue to manage yourself or find an alternative resource..

You’ll need to pay extra for training if they need to learn how to perform certain job functions (e.g., preparing budgets or financial statements).

Temp or Advisor CFO

You may need more resources or time to hire an in-house CFO. But you still need someone who can help you with financial planning and management; in this case, hiring an interim CFO might be a smart decision.

  • Pros: You only pay for the time spent working on your company’s finances while still having access to the same level of expertise.
  • Cons: A temporary solution will only work if you have clearly defined goals and objectives when hiring one; if not, it could lead to confusion over their role once they’ve left your company. 

Also, hiring someone in a more permanent role might make sense since they will be around longer to develop deep relationships with your team.

Controller/Head of Finance 

The decision to hire a controller or head of finance is often based on the needs of the business. For example, if you want a more hands-on approach to your financial management, consider hiring someone who can oversee all aspects of your accounting operations.

  • Pros: They have the experience and knowledge to understand the company’s finances, which is important for any company looking to hire a traditional CFO.
  • Cons: It can be difficult for a controller/head of finance to become familiar with all aspects of the business because they are dealing with many different jobs simultaneously instead of just one job at a time.

Finance Firm

A finance firm is an alternative to a full-time CFO. It can be a good fit for companies with only a few employees and don’t need the full range of financial services a CFO provides.

  • Pros: Good for startups and small businesses. A full-time CFO might be too much overhead for a startup or small business. A finance firm can handle your accounting and finance needs and provide more in-depth advice as your company grows.

Flexibility. A finance firm requires a different level of commitment than hiring a full-time employee. If needed, you can scale back your relationship with them or end it altogether if you decide to hire a full-time CFO.

Cost savings. While some upfront costs may be associated with hiring a finance firm — such as paying for initial setup fees — they generally charge less than hiring someone on staff because you only pay for what you need and don’t have to cover an annual salary along with payroll taxes and benefits (health insurance, 401k match, etc.).

  • Cons: Limited availability of services. Many finance firms only offer basic accounting services because they must be set up to provide planning, cash management, and other sophisticated services essential when running a startup.

What Should I Look for When Hiring a CFO?

Here are some key things to look for when hiring a CFO:

  1. Relevant Experience: Look for a CFO with experience in your industry or a related field. They should demonstrate their understanding of your business model, financial challenges, and opportunities.
  2. Strategic Thinking: A CFO should be able to bring a strategic mindset to the role. They should be able to work with the CEO and the rest of the leadership team to develop and execute a financial plan that supports the company’s goals and growth.
  3. Financial Expertise: A CFO should be an expert in all things financial – or at least most things. They should be able to support any areas they lack through other team members or resources. They should be able to manage financial reporting, budgeting, forecasting, and cash flow management.
  4. Analytical Skills: A CFO should be able to analyze financial data and use it to make informed decisions. They should be comfortable working with complex financial models and be able to identify trends and opportunities in financial data.
  5. Communication Skills: A CFO should be able to communicate complex financial information clearly and concisely. They should be able to explain financial concepts to non-financial stakeholders and work collaboratively with other departments.
  6. Leadership Skills: A CFO should be able to lead and manage a team of financial professionals. They should be able to guide and mentor their team and delegate responsibilities effectively.
  7. Technology Skills: A modern CFO should be comfortable with technology and able to leverage financial software and other tools to streamline financial processes and reporting.
  8. Ethics and Integrity: A CFO should have a strong sense of ethics and integrity. They will manage the company’s finances and ensure compliance with legal and regulatory requirements.
  9. Cultural Fit: Finally, a CFO should be a good cultural fit for the company. They should share the company’s values and be able to work collaboratively with other members of the leadership team.

Ready to Hire a CFO?

The decision to hire a CFO should not be taken lightly. If you are considering hiring a CFO, it’s important to understand the role and how it will impact your company before making any final decisions.

If your company needs strategic financial guidance and support but is not ready for a full-time CFO, Mighty Startup’s fractional CFO services can provide a cost-effective solution to support your company as it grows. We strive to build real and meaningful relationships with everyone we work with, whether it is a short-term project or a longer-term engagement.

Schedule a call with us, and let’s explore working together to define your goals and objectives.


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