12 Questions to Ask Yourself Before Hiring an Outsourced CFO
Pop quiz: Which of these situations needs a CFO?
You’re a small- to mid-size business owner and the monthly accounting reports are late… AGAIN!
Your bookkeeper won’t respond to your emails by the time you can finally look at them, and you’re beyond frustrated. You know in the back of your head that the bookkeeper is stretched too thin to meet your needs; and worse, he may not have the understanding needed to keep up with your changing business.
You own a fast-growing, medium-sized company – and that’s the blessing and the problem. You’re not sure if you need financing, an investor, if you should sell your business, acquire another business, or if there’s a better option you don’t even know to consider!
You need answers and can’t afford to make mistakes at this crucial time in your business.
You’re passionately putting in 30 hour days in an early, pre-funding startup and you need someone to join the management team and convince investors you’ve got your act together.
Is a CFO right for you?
If you answered, “I DON’T KNOW!” don’t worry – you are correct! You don’t have enough information from just those frustrating scenarios.
Because bringing on a CFO isn’t black and white for most businesses. First, you must take the time to figure out exactly what financial support you need. And there is a blueprint below for translating that will shed more light on whether or not it is time for you to pull the trigger.
I’ve prepared 12 critical questions that we walk through with all of our potential clients. To protect their hard-earned money, we want to be absolutely sure that a CFO is the best choice for them.
Go through these and write down your answers. If you answer yes to more than 40% of these, it may be time to talk to us about whether or not you should add a CFO to your organization.
Let’s dive in!
1: Do I Really Need A CFO?
This is a great time to separate your feelings from your business needs. (I never said it was going to be easy!) Sometimes we are just tired, mad, and frustrated, and it happens to be the day that we look at our monthly financials. Remove yourself from that emotion for a minute and instead, objectively ask: Is my business growing in such a way that I am spending more time on finances than I can afford?
2: Am I Spending Too Much Time On Finances?
If you are spending more than 10-15% of your precious time dealing with accounting issues and talking with your bookkeeper, that’s TOO MUCH!
Calculate that – if you are working 8 hour days, that’s 4-6 HOURS of time you are not developing business, improving your operations, and focusing on revenue-driving actions that only you can execute. If you are working 12 hour days, that’s 6-9 HOURS of your time each week working on accounting and finance. The ONLY way that makes sense is if you are in a stage of your business in which you are seeking funding from one source or another.
3: Have I Said More Than Once A Month, “I Hate My Bookkeeper!”
First, you need to know, you may not actually hate your bookkeeper. You might hate accounting, and you might hate bookkeeping language and restrictions and detail, but you may not hate your bookkeeper.
The real problem is usually that bookkeeper’s job has grown too big. If external, they are likely stretched too thin with clients. If your bookkeeper is an internal employee, he/she could be similarly stretched, but could also be operating outside of his/her comfort zone.
In this case, you may not need a CFO, but you could use someone with a good understanding of the entire process to assess which of these situations is driving your frustration in order to define exactly what help you do need to add (or replace).
4: Am I Losing Sleep At Night Over My Bank Account Balance?
If you don’t have a good feel for what your cash balance will be over the next 13 weeks with a reasonable level of confidence, you definitely need a finance lead within your organization, and possibly a CFO.
5: Does My Company Have Processes In Place To Provide The Bookkeeper What They Needs To Provide Me With Accurate And Timely Month-End Financial Reports?
If your financial reports are consistently delivered to you later than expected, that can often mean that your organization isn’t providing the bookkeeper what he/she needs in order to record the transactions of the business. Is there a process to be sure that all receipts are provided in a timely fashion?: Is there a clear process for invoice submission and approval? Are we billing customers as soon as services and products are delivered? Does everyone understand who has the authority to do what?
If not, that could be a sign you need a CFO.
6: Am I Uncertain About How I Am Pricing My Products And Services?
You invest precious time, energy, and expense into selling your products and services, and earning revenue for your company. But revenue alone doesn’t increase your bank balance. If you don’t know the true profitability of your individual products or services, there’s a chance you could be losing money because of leaky operations, imagined market pressures, or conservative habits.
You need to know which things make you the most money for the smallest investment. If your products and services have grown in number to the point at which you no longer understand their individual profitability (Revenue minus related expenses), then you might need a CFO.
7: Have I Received A Payroll Letter From The Government?
If you receive a payroll tax delinquency note from the state or federal government, consider it a wake-up call.
You can receive crippling fines and other penalties from a state or from the IRS if you trip the wrong triggers with either of these authorities. Regardless of whether you need a CFO – get legal and professional accounting help if you end up in this situation.
A very strongly held personal opinion of mine: OUTSOURCE PAYROLL. All of it. The amount of effort that it takes to manage payroll, and keep up with and comply with all of the associated state and federal filing requirements is phenomenal. It is NOT your core competence! (Unless you are a payroll company, in which case I’m guessing you haven’t read this far.) There are very cost-effective service providers out there, and you should look at your total cost of payroll as including the cost to manage payroll (even if you DO choose to do it internally).
8: Am I Comparing My Actual Financial Performance Against Budget And/or Forecast That Ties In With My Business Strategy?
How do your monthly profit and loss sheets look? Do you create and look at them each month? Are they arranged in a way you can easily see monthly trends and compare them to your monthly budget and/or forecasts? Does the budget and/or forecast clearly align with your business strategy such that you know and understand where your assumptions show up in your numbers?
If your business is of a size or complexity at which you can no longer easily know and see from the financial reports the progress you are making against your strategic goals and annual objectives, then it may be time to assess what level of financial skill should be added to your organization (or outsourced.)
On the other hand, if you do feel that your numbers accurately reflect your business strategy, then you may just need to add a requirement that your bookkeeper provides the monthly financials in a way you can easily spot trends and insights.
9: Does My Company Need Financing?
When it is time to take on more money to fund your growth, it is almost certain that you should have someone you trust completely in your corner. This experience requirement does rise to the level of a CFO, whether part- or full-time, who can assess the risks and benefits of different funding sources, and the rewards and pitfalls of equity versus liability financing; as well as prepare for and present the business case to prospective investors or lenders.
You know that in order to bring money into your business, you either have to pay interest to a bank or give up equity to an investor. Although it may seem like the equity to an investor is cheaper because you’re not paying interest on it, there are significant longer-term offsetting costs to giving up equity. If your business succeeds, the cost of equity can be exponentially high compared to interest costs.
These pros and cons need to be carefully considered along with your own risk and reward preferences, and a trusted CFO is the person to do this with you.
10: Are My Financial Statements Continually Late?
When do you get your financial statements? If you’re not getting them until after the fifth workday of the following month, we should talk. Multinational, $1 billion companies, with multiple subsidiaries can close the books (without falling back on estimates) in as little as 2 days after the month-end. And I won’t even begin to outline here the complexities involved in those closing processes. So if your company is domestic, dealing in one currency, with one office, and has less than 200 employees, five days is more than generous!
This will be the most controversial paragraph in this post. I’ll leave it to you to evaluate the validity of the argument from your bookkeeper should he/she object. But remember – when he/she does object – refer to question #5 above. He/she probably has a right to object – but it can all be fixed.
Every day that you wait to see your previous month-end financial reports is one more day that you can’t implement a critical change that may be indicated by the information in those reports. That costs money. Push hard to get your financial statements within 3-5 days. You deserve that, and it is achievable.
11: Am I Exhausted By Having To Learn All These (Boring) Accounting Terms?
If your answer is HECK yes, a CFO can take over the responsibility of translating accounting terms like debit, credit, depreciation and GAAP into the language that aligns with your business strategy and the levers that you use to control your business.
A good CFO discovers the way you best absorb and process information, the way that you think about your business, and the best way to communicate with you. They make sure that information is presented to you in the way that you best absorb it; and as for format: If you prefer email, they’ll email; if you want a phone call, they’ll call. And if you want to talk to them in person, they’ll come knocking on your door.
12: Do I Feel Alone At The Top?
If this is the case, I think every CEO in the world, myself included, can empathize. You have a ton of responsibility on your shoulders. Your employees, your vendors, your customers, and your family are counting on the decisions you make each day. THAT is pressure.
A huge portion of that pressure is a financial concern; ensuring that your business is, and remains financially viable; or even better, financially vibrant. It’s not something you can share with all of those people you are worried about.
You need a trustworthy person in whom you can confide your concerns as well as your dreams for the business. You need a trusted sounding board; someone in the foxhole with you who can help you figure out a way to navigate without frightening the rest of the organization, your clients, your vendors or that treasured family.
We think that these questions can help guide you through the decision “to CFO or not to CFO”. Above the 40% mark in the “YES” column and you might need a CFO – or at least someone to talk with about what level of financial skill you need supporting your business.
What do you think? Are we missing any of the key questions facing small- to mid-sized business owners that might indicate the need for more advanced financial help?
Let me know in the comments below.
Author, Virtual CFO, and Finance Coach
"Your First CFO: The Accounting Cure for Small Business Owners" on AMAZON.