Business Consulting and Advisory

How To Determine If Your Business Needs a CFO?

July 11, 2024

An image of a small business meeting where an outside CFO has been brought in to advise the business.

A business is as good as the people who run it. When you own your business, you make tough decisions that decide your company’s future. One such tough decision is hiring a Chief Financial Officer (CFO). It is a difficult position to fill as educational qualification alone doesn’t suffice. A CFO brings experience, professionalism, and finance, business, IT, and compliance expertise. An accountant can report the financial statements, but a CFO converts that data into effective strategies and well-informed decisions through budgeting, forecasting and financial planning. 

Qualifications of a CFO 

On the academic front, a Chief Financial Officer is generally a certified public accountant with an additional degree in business administration, IT, or law. Beyond academics, a CFO has qualitative skills like strong communication, leadership, strategizing, innovation, problem-solving, forward-thinking and risk management.   

To give you an idea of how a CFO functions, we will take an example of a business scenario. Post-pandemic, a company decides to adopt a hybrid work culture. It is a massive restructuring and needs stringent planning and execution. You must invest in technology and training, work out policies, minimize risk, ensure data security, and renegotiate rent agreements. A CFO will help prepare the budget, analyze risks along the roadmap, monitor the efficient financial execution of the plan, put funding in place for contingency, ensure financial compliance, and look at the economic impact of this decision. A CFO will have end-to-end control of the finances. 

How Do You Know Your Small Business Needs a CFO?

While CFO services have their benefits, does your small business need a Chief Financial Officer?

There is no direct answer. It depends on your business requirements. While many consider company size and financial complexity some considerations, they are for a full-time CFO. Even startups and small businesses need CFO services for a particular task. They can outsource CFO services. It is cost-efficient and can also help you gauge if your business needs a full-time CFO. Let’s look at a few scenarios where a small business may need CFO services.

Business Is Going Through Financial Crisis 

One should seek a financial expert when they are having financial difficulty. But we often miss out on this point considering the expenses attached. If your business has been struggling with delayed invoicing, late payments, liquidity crunch, raising capital, high debt, and constant losses despite good revenue, a CFO can help. A CFO can prepare budget and financial plans, set up invoicing and payment processes to manage liquidity, identify cost-saving opportunities, and more. While a CFO can do all this, you want the one with the expertise to handle your specific business problem. 

You might seek a Chief Financial Officer with experience in organizing or restructuring a company’s financial operations and strategies. If debt is your biggest concern, you might want to look at the CFO’s expertise in debt management restructuring. 

Economic Uncertainty Is Affecting Business 

Another scenario is that economic conditions like high inflation, rising cost of capital, and a slowdown in demand have hampered business finances. At times like these, you might want to consider CFO services.  

A good CFO can help you earn some passive income sources through investments, look for cost-saving opportunities, optimize resource allocation, and prepare a financial strategy for the downtrend and a roadmap to recovery. What a professional brings to the table far outweighs the cost. Remember, you pay for the CFO’s experience and expertise to be creative, innovative, and solve the problem. 

Business Is Experiencing Rapid Growth Or Expansion

Most startups and small businesses experience a period of rapid growth. A sudden growth in order volumes could require more staff, a production boost, and equipment. While growth is good, expenses gone unchecked could hamper profitability despite a booming business. A significant capital investment without hopes of more order growth could put you in a debt spiral and lead to multi-year losses. 

A CFO can assess the business requirements, set a budget for each, and determine whether to rent or buy equipment by looking at return on investment and forecasting revenues and cash flows from rapid growth. The CFO will also prepare a risk strategy to minimize losses if things go south. Experts know that no situation is permanent. Hence, they assess the risk and plan the finances to help the business hang tight till the next opportunity arrives. 

Business Wants To Raise Capital Or Launch an IPO 

IPO is the most apparent reason for having a CFO. Shifting from a private company to a public company complicates the finances and imposes several reporting and disclosure requirements. A company that raises venture capital or goes public needs a CFO experienced in stakeholder management, financial compliance, and fundraising. 

A CFO, with good communication skills and subject expertise, can help present to investors the company’s financial condition and its plans to invest capital and give returns more effectively. Not only IPO or venture capital, but a CFO can also help you raise capital from other sources cost-efficiently with the best credit terms. If this is your business requirement, look at a CFO’s experience in raising capital. 

Support in Making Sound Financial Decisions 

If you feel burdened with making sound financial decisions backed by data and risk management, you need a CFO. From contingencies like economic constraints, changes in tax laws, and environmental disasters to opportunities like buying new equipment, acquiring a company, and signing long-term supply contracts, a CFO can help you make data-driven, informed decisions. 

While these are just a few scenarios, you can analyze your business needs and see if the advisory services of a Chief Financial Officer can change the course of your finance graph. 

Contact DNTW Toronto LLP to Help You with Your Business Finances 

Talk to a CFO and tell them your business problems. They can work around your requirements and help you strengthen your financial situation. To learn more about how the team at DNTW Toronto LLP can provide you with the best financial planning expertise, contact us online or by telephone at 416.924.4900.