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WHEN DO YOU KNOW YOU NEED A CFO?

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For many new small businesses the financial office is far from the first thing to be established. However, as a business grows, so does the need for more sophisticated financial services and financial professionals. At some point, successful businesses have to decide whether they should hire a chief financial officer to take charge of all financial operations.

“Our role as CFO is to be a leader in the organization from a financial perspective,” says Vanessa Graham, owner of VGraham, a consulting firm in Baton Rouge that offers outsourced CFO and controller services.

Graham spoke recently at a Tech Park Academy session at Louisiana Technology Park about the topic of when to bring on a CFO and the characteristics you should look for in a CFO. Read on for key takeaways from her presentation.

Understand Other Roles in the Financial Office

Before deciding whether your business needs a CFO, it’s necessary to gain an understanding of some of the other roles critical to the company’s financial operations.

Graham began by explaining the role of the bookkeeper as “the person who captures the data — all transactions in your organization.” She said the best bookkeepers tend to be thorough, including constantly checking behind themselves to make sure they have complete information, and that they have billed everyone, recorded all expenses and paid all bills that are due.

“This sounds very simple, but think about how important it is to you and to your cash flow,” Graham said.. With the right direction bookkeepers can be a key resource to you,” she said.

Graham notes, however, that sometimes the person in the bookkeeping role doesn’t “have the background to shape the information and report it to you such that it tells you a story or tells you where you are.”

For this you need some higher-level financial functioning and oversight of the bookkeeper role. In many organizations, this comes from a controller or CFO.

Graham said a controller is a great option for many small businesses. Controllers have strong financial skill sets and many times are on a career path that they hope will lead to a CFO role. They are at the intersection of all activities in the organization and apply a valuable analytical view. Controllers can offer perspective on the company and its financial performance, but to go beyond that and give forward-looking insight into what you can expect from the company’s future performance a CFO may be required.

Know What Makes a Great CFO

Graham listed strong financial awareness as the first trait to expect from a CFO. She defined this awareness as being able to quickly take a deep look into an organization and understand what drives it and affects its performance. It’s more than being able to give the numbers listed in the financial statements; it’s having an ability to clearly articulate what affects the financials and to aid in decision-making across the organization.

Ultimately you’ll want someone with the ability to help you translate your business plan into action and to be a financial partner who guides your organization in financial decision-making, Graham said. While CPAs can be valuable in financial planning, “the day-to-day of the financial office is about looking forward, and [a CFO] needs to be very forward looking — needs to help you with tomorrow,” she said.

In listing some other characteristics of an effective CFO, Graham emphasized that the best financial officers have an operational mindset and a working understanding of all of the organization's systems. A good CFO doesn’t have to be a tech person, but you’ll want to look for someone who is able to leverage systems to optimize efficiency within the business.

Strong Communication Is Critical

Graham said a CFO should be able to articulate your business plan through financial forecasts and models that are useful to decision-makers in the organization. They should be able to help lead your organization while promoting transparency of financial performance. A good CFO is able to translate the business’ financial and nonfinancial metrics into useful operational insights that help managers, board members, investors and others understand how your business is performing.

But strong analytical skills and financial acumen aren’t enough to make a great CFO. To lead a strong financial office it’s helpful to have a leader who is approachable and easy to work with. The CFO will need to have an understanding of what’s going on in all aspects of the business to be able to deliver the best insights. This person will need to interact with people outside the financial office and across the organization, so communication and other soft skills go a long way.

Ultimately you’ll know you need a CFO when you’ve determined you need more than someone who records all your business’ transactions and prints financial statements, Graham said. You’ll have reached a point where historical data on your business’ performance is not enough to aid in your decision-making and you need a trusted adviser to guide you in understanding the financial impact of the choices ahead in your business.

Stephen Loy