Ask any bank manager who their worst customers are and they will quickly tell you: the people who have no idea what is going on in their business. Some customers ask for finance or expect to maintain an overdraft, yet they cannot even produce up-to-date accounts!
As a business grows, it will need to delegate key tasks to experienced and qualified team members. The areas the business owner will seek help in first will be determined by the focus and needs of the business; either sales, operations, admin or finance might be given priority. If we look at the finance function, it is traditional to break it down into 4 roles:
- Finance direction
- Finance control
- Bookkeeping/basic accounting
- Data entry
Many business owners think the finance role is transactional in nature, so they concentrate just on producing accurate accounting records. This is essential, yes, but it’s not enough to manage and develop a growing business. When focusing on the CFO role specifically, what are the key tasks of this role and what does the CFO bring that the other finance roles do not? Why would you need a CFO? We suggest the following 3 main areas of expertise and input:
- Strategic – Coordinating and developing long-term business plans; defining implementation timetables; assessing the risks involved and seeking the funding required to deliver the proposed plans.
- Operational – Developing internal controls; managing and developing the reports needed to run the business; improving profit levels; managing cash flows.
- Support – Tax planning and legal issues; compliance issues; managing external relationships.
The modern CFO needs to be able to develop all this and more. There are also many other considerations that go beyond the pure “job description” above. Here are some of the main ones:
Financial or management accounting: Management accounting looks forward and financial accounting looks backwards. It’s where your business is going that matters as the past cannot be changed.
Experience: It is important that a CFO has a wide range of commercial experience, not just financial. Good CFOs do not learn their skills from textbooks alone; they learn by doing, and yes, sometimes by making mistakes. Commercial experience means leaving the ivory tower and talking to customers and engaging with the production and operations teams.
Qualifications: Although a good accountancy institute qualification is important, it will not stand up by itself without the backing of a strong track record.
Personality: A CFO must be able to communicate at all levels. Communication with peers needs to be collegiate. An effective CFO grows beans and gets team members to count them! A delegating personality is therefore essential.
Full or part-time: It is clear that in an SME environment, there is not always enough to keep an experienced full-time CFO busy. There is an increasing trend towards flexible, part-time CFO services. This helps entrepreneurs keep costs down but at the same time enjoy the benefits of a high-calibre CFO directing the company’s finance function.
Wrapping Up: 5 Key Things to Consider
- Do you need a full or part-time CFO?
- Make sure the CFO has a commercial mind-set formed from real life rather than textbook experience.
- Some experience in general management is useful.
- In a business, management accounting experience is more relevant than financial accounting experience.
- Remember: the CFO should be involved in all major strategic decisions. Many good businesses fail not through a lack of ideas, but a lack of finance.
CFO Centre is the global number 1 provider of part-time CFOs to SMEs. For more information call us on 1300 447 740.