By: Beth Mullaney, Director of Business Development, Partner

Business owners of any size need a financial bench that can accommodate their ever-changing needs – everything from bookkeeping, tax compliance and reporting, to revenue forecasting and long-term financial strategy. There is a common misconception among small and medium-sized business owners that an external CPA firm and the role of a Chief Financial Officer (CFO) are interchangeable, but this is far from the case.

A CPA firm is typically more tax and audit focused while a CFO is more focused on an organization’s internal long-term financial strategy, which includes forecasting, budgeting, cash flow issues and more. While the external CPA firms and CFOs are financial experts, they have vastly different specialties and roles. It is critical to your business, regardless of size, that you understand the difference.

  • External CPA Firm Certified Public Accountants– One of the greatest benefits a CPA firm will bring to your business is their knowledge of tax law and compliance. The firms experience is geared toward providing tax advice, looking at your company from a macro level, and offering external advice on a quarterly basis.
  • Chief Financial Officers– A CFO’s primary function is the exact opposite; they are an internal resource to examine your business at a micro-level, offering weekly guidance on the company’s financial goals, pricing models, and the best ways to allocate resources like capital, people, and equipment to bring the most revenue in.

Companies that utilize a CPA firm and a CFO have both ends of the spectrum covered. And growing a business requires both of these roles to facilitate collaboration and establish a connection between past activities and future strategy. In the best-case scenario, CFOs work very closely with CPA firms to ensure that the company is moving forward financially while saving as many tax dollars as possible.

Many small-and medium-size businesses believe that employing a full-time CFO is an impossibility because of budget. But that doesn’t mean you can’t benefit from the services of a fractional CFO. A fractional CFO allows you to receive the expertise of an experienced CFO on a part-time or contract basis. This model is significantly less expensive than hiring a full-time CFO but still provides you with you a level of expertise and insight that would otherwise be unavailable. Contact us at [email protected]  to learn more about Rankin McKenzie’s fractional CFO services.

Many founders and CEOs of startups don’t spend a lot of time thinking about CFOs. When it comes to finance for a startup, founders focus on more pressing needs: What’s my burn rate? How long is my runway? How does our annual recurring revenue (ARR) look? How much more money do we need?

As an entrepreneur who has sold two companies over the past decade, I can speak from experience that it isn’t until a startup reaches some success — systematic product launches, lucrative partnerships, international expansion and reliable revenue growth — until they inevitably begin to ask The CFO Question.

Do the Old Rules Still Apply?

So when is the right time to bring on a CFO? Until recently, this was a relatively easy question to answer. Hiring a CFO doesn’t make much sense for most startups until they achieve “meaningful revenue”; annual revenues hit about $100 million or more; until the founders and board started planning seriously for an IPO; or other significant liquidity event. The old rules suggest it wasn’t the right time until you were 12 to 18 months away from an expected IPO roadshow, that you started looking for a finance chief.

But the old rules for when to hire a CFO don’t apply like they used to. One reason is that the job of the CFO and finance organization has changed. If you haven’t noticed, it is much more difficult in today’s climate. It seems like everyday we’re reading about CFOs getting fired or removed from their positions; case in point Walgreens and the City of Detroit. Reliant on traditional methods, the “bean counters” of the company are struggling to adapt into today’s world.

Nowadays, businesses are looking for their finance departments to do more than track and report results, close the books every quarter, and establish guardrails for spending. Today’s finance executives are expected to recognize that planning involves data, decisions and people – not just spreadsheets and budget mandates. They’re now expected to work across the organization to model the business for growth, develop potential responses to likely scenarios (good and bad), align new initiatives with monetization, and deploy resources and investments where they’d drive new revenue. As an example, look no further than Twitter CFO Anthony Noto, who took the helm over this past Summer but is now announcing strategic product news for the burgeoning company.

The CFO’s role is changing because modern companies like Twitter are competing in an increasingly data-driven, real-time environment. This imposes new pressures on finance to be more collaborative, to move its core financial planning and analysis (FP&A) process beyond the rarefied, highly trained domain of finance – which I call The Office of the Few – and bring it to the front-line managers whose activities and decisions directly impact revenues and expenses. That calls for much more than counting beans or simply new technology. It requires a change in process.

New Rules for a New World

These shifts suggest a change in hiring strategies for companies looking to bring on a finance guru. When it comes to hiring a CFO, don’t wait too long – and don’t hire too high.

Don’t wait too long. If you’ve held off on hiring that finance guru until the moment you have an IPO or other milestone in your sights, you’ve waited too long. You’ve missed at least a year’s worth of strategic planning that likely will benefit your business for years to come. You’ve missed crucial months that could have been spent identifying where you should place your biggest bets, your most valuable resources, and your most significant investments. You’ve let decisive opportunities pass by to structure your organization so it can scale as you bring on new customers, partners, business units and distribution channels. Wait too long, and you’ll make your new CFO’s job even harder once he or she comes on board.

Don’t hire too high. Startups too often set a trap for themselves by thinking only a CFO-level individual has what it takes to create a well-run finance organization. (They’re also not anxious to pay CFO salaries, which averaged over $200,000 in 2013.) But these days, you can bring strong finance talent aboard – a controller, perhaps, vice president or even director of finance – to lay the important groundwork needed to establish a high-performance environment. You need someone who understands the very unique relationship between data, decisions and people.

Even a mid-level finance pro can move an organization’s planning, budgeting and forecasting processes beyond Excel spreadsheets so managers have the data and analytics needed to understand those “what-if” scenarios and utilize predictive analytics and forecasting – the kinds of things that historically were stuck in The Office of the Few. Armed with the right technology, the right person can help shepherd their organization through the process of integrating data from internal sources like, NetSuite or Marketo with external customer sentiment information from Facebook or LinkedIn, and even pull in supply-chain updates or weather forecasts to get a real-time picture of the factors that really drive the business.

Every day, I see companies achieve this without an IPO (or CFO) in sight. They trust in the person who understands the connectivity of data and individuals — someone who aims to make everyone in the organization play a little Moneyball. And when it finally comes time to bring on that CFO, you can bet he or she will have plenty of thanks for the team who enabled them to inherit a finely tuned machine, not the spreadsheet-driven mess they’re used to seeing, and that likely factored into their decision to leave their previous company and join your startup.

 , Posted by Christian Gheorghe is the founder and CEO of Tidemark, maker of modern cloud-first business planning and enterprise analytics 
solutions. Previously he was formerly SVP and CTO at SAP.

What You Need to Know About Hiring a CFO

From the January 2013 issue of Entrepreneur

Q: How do I know when it’s time to hire a CFO?

A: I’m glad to hear business is taking off to the point that you realize you need someone you can trust to handle the money side of the operation. Let me start my answer by explaining exactly what a chief financial officer does, as compared to a bookkeeper or controller.

Bookkeepers are responsible for recording all company transactions: orders, invoices, purchases, bills, checks and payments. They perform various processes and procedures to make sure that what they enter is complete and accurate.

A controller creates timely and accurate financial statements–such as balance sheets, statements of profit and loss and cash-flow statements–based on the transactions entered for each accounting period. The controller is a trained accountant with formal education and sometimes certifications. It’s his or her job to make sure the accounting department is on top of entries and that statements adhere to Generally Accepted Accounting Principles.

A CFO looks at the bigger picture. This executive makes sure that the systems, processes and people are in place to produce accurate financial information (reports, dashboards, key performance indicators, etc.) so that the owner of the company can make better decisions. Put simply, a controller looks at the past, while a CFO looks to the future to help figure out how to reach the company’s goals. At the same time, a CFO is responsible for minding daily cash flow.

But Do I Need One?
Now that you know what a CFO does, ask yourself the following questions:

  • Are you constantly worried about cash or experiencing cash shortages?
  • Are you losing sleep, worrying over the direction of the business?
  • Are you working overtime on tasks that are unrelated to growing the business, such as determining what bills to pay, considering issues related to tax liabilities and preparing for meetings with bankers, accountants and lawyers?
  • Are you concerned about the security of your business and its financials?
  • Is your business failing to make adequate margins and profits to finance growth?

If you answered yes to any of these, you should consider bringing in a CFO.

How Do I Go About Hiring One?
If your company has less than $25 million in annual revenue, you could likely make do with a solid full-time controller and a CFO who provides services on an as-needed basis. If you have more than $25 million in annual revenue, you may need a full-time CFO, depending on the complexity of the financial systems used in your field and the challenges of the business. If you’re bringing in more than roughly $75 million, you definitely need a full-time CFO–there’s no way you can stay on top of financial matters at a business that size without one.

A full-time, qualified CFO with years of experience can command an annual compensation package of $250,000 or more, depending on location. Therefore, it’s the type of hire that may require the services of an executive search firm. For a less-than-full-time CFO, you can turn to the internet or work through your network of trusted advisors, such as your banker, attorneys or CPA.

However you proceed, finding a CFO you can trust is a wonderful thing. You can delegate a lion’s share of the financial headaches to this person and know that he or she has your back. And that, my friends, will let you sleep soundly for the first time in years.

By: Joe Worth