At what point does a company even need a CFO? How should a company hire their first Chief Financial Officer? Those are all very good questions and they are ones that we discuss with business owners on a regular basis.
Ideally, in a perfect world a company should be up and running, generating income, growing and successful before hiring its first full-time CFO. Although that is not always the case with many companies who need a CFO, there are at least a few general guidelines that should be considered when contemplating hiring your first CFO.
Generally speaking, you need to have some revenue coming in. There is no hard and fast number, but if your company is generating between $5 and $15 million per year in annual revenues it may be time to start thinking about how to hire a full-time CFO. On the flip side, if your organization already has annual revenues of $15 to $25 million and you still don’t have a full-time CFO, you probably need to start thinking quickly about when and how to hire one.
Another metric that needs to be considered is headcount. If you’ve got 10 people in the whole company and a pretty straightforward business model, that probably doesn’t warrant hiring a full-time CFO. If, on the other hand, you are approaching 40 or 50 full-time employees and things are getting fairly complex, you probably need to at least consider adding a CFO.
A third aspect to consider is growth expectations. Is the company currently growing and is the company expected to continue growing at the same rate? A growth rate somewhere between 15% and 25% per year is a relatively fast rate of growth and things can get complicated quickly in that type of environment. Do you have the finance leadership in place that can keep up with where the organization will be next year? It’s often better to ramp up and be prepared beforehand instead of trying to catch up once the effects of the growth have impacted the business and the financials.
Another factor to consider is simply how well are you sleeping at night. Are you worried that you might not have a perfect grasp on the financial condition of the company?
Doubts, concerns and questions may warrant bringing on a CFO. How complex has the finance and accounting become? How confident are you that, from a financial perspective everything is being handled properly? How confident are you that the finances are being handled in the most productive and efficient manner possible in order to ensure the success of the organization? These are good questions to ask.
One final point worth mentioning is that if you have any type of outside investors or venture capitalists involved, you definitely need a CFO if you don’t already have one. The image of the company is at stake and your ability to secure funding and/or additional future funding could be impacted significantly depending on how they perceive the financial condition of the company.
These are all things that should be considered when contemplating hiring your company’s first CFO. A strong, well-qualified, top-tier CFO can bring a lot to the table of a growing business and hiring the right one for the position is absolutely essential. One thing is for sure – if you are able to get the right CFO in the position versus just any CFO, he or she will more than offset their compensation in the near future.
We know the process of hiring a CFO for the first time can be a daunting one, but we would love to offer our expertise in guiding you through the process. We’ve done it many times before with many different companies.
The feedback we generally receive from companies who hire their first CFO through us is almost always the same – they all wished they had done it sooner. What they typically say is that they didn’t really realize just how badly they really needed a CFO until they had one!