We get these questions frequently from small business owners. While there is no hard and fast magic formula, here are some key considerations to help you decide.
Availability of Important Decision Making Information
Is key information for timely and important decision making available in an accurate and consistent manner?
If you find that you rarely or never get accurate financial statements for review on a monthly basis (by the 10th of the month for the previous month for most small businesses), you may have outgrown the expertise of your current accounting staff.
If you aren’t sure the information is accurate, ask yourself if you have had surprises at year end when it comes time for your CPA to do your taxes. If many adjustments are necessary or you have been significantly over or under paying your tax estimates, you would benefit greatly from the expert eye of a CFO level resource to stay on top of your business’s financial performance throughout the year.
Annual Sales Level
Are your annual sales in excess of $1 million?
While, it will largely depend on your business and/or industry, small businesses with sales over $1 million would benefit from some amount of CFO level expertise, even if it just one day per month to discuss your financial statements, bring some perspective and keep you on track .
Anticipated Rapid Sales Growth
Do you anticipate a steep growth in sales or have your sales already grown by more than 25% in the past 12 months?
Rapid growth is another important indicator. Growth requires an expansion of automated systems to handle the growth, and additional planning to make sure the company has adequate capital and/or financing to finance the growth. CFO expertise is best suited to handle rapidly increasing growth due to the complexity involved. A CFO can interpret the investment and technology, and the terms of acquiring capital.
Costs Are Out Of Control
Are you often just getting by with nothing left over at the end of a “good” month to invest in future growth?
If so, it’s likely that your costs are not being controlled. See our recent blog about sources of working capital here, but consider obtaining CFO expertise to gain control of costs and plan for future needs. Having a CFO resource to keep a watchful eye on your business’s spending and plan for future cash needs can be vital to your continued growth and success.
External Reporting Requirements
Are you required to report your business’s performance to outsiders?
A critical external tipping point is when respect must be gained outside the company. That could be from customers, suppliers, banks, shareholders or government regulators. CFO expertise is best suited for responding to and managing the expectations of outsiders with a vested interest in the performance of your small business.
Exit Strategy and Succession Planning
Are you ready to retire or do your plans include acquiring another business to support continued growth?
One final consideration is if a business is preparing for a sale, merger or acquisition. In this situation, CFO expertise will help you prepare your business for acquisition or evaluate a target acquisition. Working with bankers and investors can be a distraction from and a drain on the focus needed to keep the core business running smoothly. A very important skill required during these situations is the ability to feed information to and manage expectations of a potential investor or lender. The expertise of a CFO can help prepare the information required and anticipate questions, shortening the process and allowing others to stay focused on the core business.
So You Have Determined That Your Small Business Would Benefit From CFO Expertise…Now What?
If you determine you do need CFO level expertise for your small business, the next step is to evaluate how much you need. Hiring a full-time CFO can be expensive. That cost can often pose a significant obstacle to small businesses getting the help they need. Don’t despair, there are good options for small businesses to get this help at a cost they can afford. In next week’s blog, I will outline some considerations for determining the level and amount of CFO support you need.
For one on one advice, contact us here. At Barba CFO, we have helped many small businesses, with our CFO for hire services, address urgent and important financial decisions and take control over their business’s future.