Many small businesses operate without a chief financial officer (CFO) and are able to do so just fine. However, there may come a time when it makes sense to employ one for the benefit of your company.
"Consider that, according to the U.S. Small Business Administration Office of Advocacy’s 2023 Small Business Profiles for the States, Territories, and Nation, 99.9% of U.S. businesses are classified as small (where “small” is defined as having fewer than 500 employees) and 45.9% of the U.S. workforce is employed by small business," says CFO.com* writer Steve McNally. "By default, most CFO opportunities are small business ones."
If you are a small business considering hiring a CFO (or promoting someone in house), these are the types of things they often handle...
Cash Management
A CFO would be responsible for the business's cash management. They can provide strategic planning, make data-driven decisions, and improve cash flow management and forecasting. They can also be involved in risk management and growth, guiding expansion, and investment decisions. All of this is reliant on good cash management, and having someone dedicated to this can make a big difference for the future of your company.
Budgeting
Budgeting is part of cash management, and perhaps the most critical. Everything that happens with your cash management is directly tied to how well your business is budgeting.
The CFO oversees the financial planning and ensures that the company's resources are effectively allocated. In budgeting, they would analyze past performance, market trends, and economic conditions to determine a budget based on realistic goals and risks. They would get input from other departments regarding budgetary needs to help them figure out where resources should be distributed.
Planning Employee Compensation
Your CFO can be involved in figuring out how much you pay your employees and//or contractors. Having a better sense of the financials than anyone, they will understand what wages are realistic and can help your business avoid related problems down the line. For example, if you are paying employees too much, you may have to reduce staff or make pay cuts in the future if your business stumbles. At the same time, they can help determine which positions call for higher pay and help you offer competitive wages for hiring purposes.
Overall Cost Control
Overpaying is only one aspect of cost control. A CFO can help guide your purchasing and payment decisions for the betterment of the business. They can identify where costs can be cut without sacrificing quality and help to streamline financial processes and provide best practices for the company to follow in service of profitability.
Financing
A CFO would be directly involved with your bank, as well as investors. They will be able to help you secure the financing you need or raise capital. With your company's financials being their expertise, they will be able to best articulate the reality of your situation and your needs, which can help you get the money you need.
Taxes
A CFO can help your business with tax planning and strategy, such as optimizing tax liability and year-round planning (as opposed to focusing on taxes at the end of the year). They can also ensure your company is compliant and provide accurate reporting, as well as timely reporting, not to mention a great deal of hassle on your part.
Developing Metrics for Success
The CFO can be directly involved in helping you come up with key performance indicators (KPIs) that demonstrate the level of success your company is achieving, particularly when they relate to revenue and profitability. They can help to align KPIs with strategy to provide a connection between day-to-day operations and long-term goals. They can be involved in setting up systems and processes to track these metrics, set targets, monitor, and report.
If you feel that your business could be operating more efficiently from a financial perspective, but you don't have the time or resources to make that happen, it might be time to look into adding a CFO role to your company. The responsibilities a CFO takes on can greatly ease the burden from the business owner and help to create a more financially healthy business.
