When Will My Company Need a CFO?

By Rich Bond

When will my company need a CFO?

At a Vistage CE group meeting a few months ago, several members asked me this question; it threw me for a loop.

I’ve been thinking about it ever since because making such a decision is of critical importance to all businesses.

Unfortunately, there is no simple answer.

All companies, public or private, must have accounting records so they can pay their taxes and maintain a banking relationship.  This can be done by a bookkeeper, accountant, or accounting manager.

However, as companies get larger and more complicated (usually at about $10 million in sales), they reach a point where they will benefit from having more than simple accounting or bookkeeping.

They need financial management. With it comes better financial information; i.e., projections of what will be happening – whether there are storm clouds or clear skies ahead – and what will be the best course to avoid trouble or take advantage of the opportunities.

Someone who can do both accounting and financial management would be a Controller.

Let’s look at an example of how better financial information can help a business not merely survive, but thrive.

Many business owners assume that if they sell more product, their company will be more profitable.

But often selling more does not increase profits because of other factors that have been ignored, such as:

  1. Selling more of their less-profitable products, and less of the more-profitable products.
  2. Making incremental sales at a significant discount, which is simply mortgaging future sales.
  3. Selling more to the largest customers, who are often the least profitable customers.
  4. Failing to increase prices to offset increasing costs.

To make more money, owners need to manage what they sell and to whom they sell.  They need to manage margins, as well as sales.

With more sophisticated financial management, business owners get information and analyses identifying profitable and unprofitable products and customers, which increases the chances of making decisions that will generate the intended results.

Once a company hits $100 million in sales, however, it most likely will require a CFO. A CFO would be like a Controller but would also have the financial sophistication to manage the larger, more complex business. He or she could also play a crucial role in raising capital via equity or debt financing, readying a company for an IPO, helping with an acquisition, or presenting the analyses for a sale at the maximum price.

If you would like to discuss this topic with me in more depth, my door is open. Please feel free to reach out.

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