There are many questions to consider as a business owner or founder. You have to determine the best steps to take in order to have your company succeed. One such pressing question business owners need to answer is whether their company needs a CFO. A chief financial officer, or CFO, is the financial leader overseeing all financial decisions for the company, and holds the important position of planning out all budgetary moves.
Although the position of CFO clearly has value for any company with a regular revenue, business professionals are somewhat divided on the topic of whether a chief financial officer is a necessary role for companies to have. We asked the owners and CEOs of businesses that are dominating the eCommerce fields whether they think the CFO role is one that businesses should employ or not. Although their answers vary between sides, we hope that by reading their individual reasoning for whether hiring a CFO is essential or not will apply to your own situation and steer you towards the measure that is right for your business.
Read on to find out why certain companies believe small businesses should have a CFO and why others say the role is not essential.
Yes, Small Businesses Should Have a CFO
One company we asked to weigh in on the necessity of CFOs for small businesses is Sophistilate, the CEO of which agrees that CFOs provide the essential function of budget management, which results in saved revenue.
“Yes, small businesses should have a CFO. Financial officers help to manage overall budgets, saving businesses up to millions of dollars. Their expertise can change the trajectory of a business to save money or generate more money to fund more projects and boost business. CFO’s are important for any sized business,” says Daniel Seehoff, CEO of Sophistiplate, LLC.
The CEO of VerticalResponse says that small businesses should hire a CFO due to the immense benefit of financial insight they bring. However, she says small businesses should wait for the right time to add this position to their staff in order to ensure they’re financially prepared to employ the high CFO salary.
“It’s a growing pain that many small businesses have. Company founders and CEOs are rarely equipped to handle financing strategies, budgets and dealing with investors. But bringing on a chief financial officer is not cheap. If your company’s revenue is growing quickly, you have new investors and/or you’ve received venture capital, it could be time. When I started my online marketing company VerticalResponse, I made the colossal mistake of not hiring experienced people because I was so concerned about saving money. I raised a small amount of funding from friends and family as well as my own money. I’ll admit, I was scared; scared of what I didn’t know. I’m not an expert in anything related to accounting, so I reached out to one of my networks to get people I could have do these functions. After all, I was under the impression that launching our product and getting customers was most important, not to mention that’s what I happened to be an expert in.
The accounting manager recommended that we audit our books, which seemed like a good idea, especially since we had been having conversations about getting acquired. The auditors uncovered a horrific mistake that the previous accountant didn’t catch: We were accounting for our revenue completely wrong (non-GAAP) and we had to restate our financials, something you never want to do in your business.
[CFOs are ] great if you’re growing fast, have a lot of employees, offer complex product lines and are growing quickly. Whatever stage you’re at in your business, whether you’re just starting out or rapidly growing, you should always assess your accounting and finance status, what your needs are and where you need to be going. We’re all under pressure to save money and be more efficient with expenses; spending some money on great finance and accounting people can actually help in both areas!” says Janine Popick, Founder and CEO of VerticalResponse.
The Hug Sleep founder and CEO points out that CFOs also lead your company on its financial growth journey, another valuable role they play.
“Considering that CFOs forecast the financial direction of your business, I would say that yes, your business needs to employ one, especially if you’re a small start-up business aiming for financial growth and market expansion,” says Matthew Mundt, Founder and CEO of Hug Sleep.
In a similar light, the CEO of FinQuest Financial, Jerome Oberlton, says that a CFO is a great addition to your business’s team, but the position doesn’t need to follow the traditional CFO role. Instead, he discusses the concept of the fractional CFO. He also mentions that small businesses should wait until they’re ready to enter a growth phase to hire the role.
“A fractional CFO is really exactly what the term says. It’s a fraction of a CFO. Is a portion of a CFO who is allocated to a business where a business may not have the resources to hire a full-time CFO, but they still need that level of capability, that thought leadership. They need someone who’s going to come into the organization, help to align the finance, the strategy, look at where the organization is heading and get the organization moving in a position of profitability and growth. And that’s really what the role of a fractional CFO is.
If you really look at a business life cycle from infancy to maturity, a fractional CFO is really seated right at the midpoint of the life cycle of a business. As a business begins to grow, as it begins to look at how are we going to take advantage of the market, and how are we going to do that with a growth project out and focus?
You don’t want to bring them in too early in the life cycle of the business. But as you start to get into the later stages of your business, then you’re really looking at a full-time CFO versus a fractional.
When a business is in its infancy, they can get along with a financial staff, with accountants and bookkeepers, so on and so forth. But when they need to start to align the elements of the business with the strategy, the goals and the objective of the business, that’s the point that they want to start thinking about a fractional CFO. When they’re talking about massive growth, then they really want to think about a fractional CFO,” says Jerome Oberlton, CEO of FinQuest Financial.
The brand director of Healist Naturals also agrees that having a CFO is worth the cost of their salary.
“You shouldn’t skip on hiring a CFO if you want your business to have a handle on its financial situation, such as ensuring your company has enough funds and that they’re adequately distributed to the necessary departments. CFOs not only keep control of the company’s finances, ensuring there is enough money in the accounts, but also steer the company towards areas of new revenue growth, through fundraising, financing options, and product pricing,” says Sarah Pirrie, Brand Director of Healist Naturals.
Jay Levitt, founder and CEO of Lofta, addresses the financial reporting aspect of the CFO position, and how having a professional cover this task is like a sigh of relief.
“Don’t forget the importance of financial reporting. People often lack recognition of the fact that keeping detailed records of your financial breakdown and projected numbers helps you better understand the behind-the-scenes of your business. CFOs are the people who compile these reports after looking at all the data and crunching the numbers. No one likes to prepare these kinds of reports, so just imagine the relief you would feel at handing this chore off to a very capable and dedicated CFO,” says Jay Levitt, Founder and CEO of Lofta.
Head of Operations at Acre Gold, Jared Hines, says that CFOs bring security to your business by mitigating risk.
“One provision CFOs offer your company is the mitigation of risks that might otherwise go unseen. With your CFO keeping tabs on all areas of your financial situation including fraud, negative exposure, and reporting errors, you can rest a lot easier than if you were trying to manage such areas alone,” says Jared Hines, Head of Operations of Acre Gold.
The co-founders of Revela are also onboard with the idea of hiring a chief financial officer to manage your business’s financial department because of the way they help scale your business.
“If you are wanting to start scaling your business you absolutely need a strong CFO on your team who has an eye for details to help you prepare. CFOs will survey your financial history, trajectory, and projection, and offer honest advice on what steps you need to take to achieve the growth you’re planning for,” says Evan Zhao, Co-Founder and CEO of Revela.
No, Small Businesses Don’t Need a CFO
On the other hand, some business owners are of the opinion that CFOs are not necessary for businesses that are still small and growing. One big issue with hiring a chief financial officer that small businesses always bring up as a reason why they would prefer to search for other financial management options is the high expense of employing a CFO. A well established CFO can come with a $200,000 annual salary.
Co-founder and CEO of Rooted Plants, Ryan Lee, brings up this valid reason for why it might be better for your business to go without a CFO.
“I think it’s imperative for large-scale, successful companies to hire a chief financial officer to manage their company’s revenue and financial distribution, but small businesses that are still in the early stages usually have a much more solid grasp on their finances and don’t necessarily need a CFO right away. Once you begin on a trajectory of growth, it’s time to reconsider employing a CFO, but if your business is not financially prepared to foot the cost of a CFO salary don’t fret because there are other options. Firstly, if you are financially-savvy or have the right resources, you can take on the CFO tasks yourself as the owner. Or you can outsource an accounting service. Explore your much more affordable options and you’ll see just how possible going without a CFO actually is,” says Ryan Lee, Co-Founder and CEO of Rooted.
The COO of Vanguard Packing also notes the expense aspect of having a CFO on your team, and why it might be worthwhile for you to skip it.
“The truth is that hiring a chief financial officer might not be in your budget, but that doesn’t mean that your company can’t have its finances well taken care of. If you examine the work that CFOs complete and redistribute those tasks amongst your staff or current leadership team, you will realize that you’re still able to cover the same amount of jobs without adding another member to your team,” says Jim Beard, COO of BoxGenie.
The CEO of Oxford Hill says that although having a CFO has obvious benefits for your company–mainly that financial decisions are being well considered and out of CEOs’ hands–the role is not imperative right away.
“As a CEO or business owner you are incredibly busy with the tasks associated with your role. Of course it would be phenomenal to have a chief financial officer, or CFO, to take care of all the company’s financial needs. However, the biggest drawback for small businesses hiring a CFO is the cost of staffing the position. In order to bypass the expense of a CFO, it is possible for small businesses who are not yet financially established to become their own CFOs. While it will take a substantial amount of additional time and determination, small business owners or CEOs acting as the financial officers for their company is within reach. You have to first ask yourself what tasks the CFO role would take on, such as record keeping, budgeting, and growing the business through financing options. In all honesty, if you, the CEO, don’t have the additional time to lend to the financial aspect, it might be best for you to arrange your budget to accommodate hiring a CFO. But if you’re prepared for the commitment, you don’t need to give in to the pressure to hire a CFO that you’re not financially prepared to employ,” says Alvin Oommen, Founder and CEO of OXFORDhill.
The founder of Nesas Hemp does not believe a CFO is an essential role for small businesses to fill since they are able to hire a third party CPA firm to handle their financial accounts for a lower cost.
“Rather than bringing a CFO onto your staff, you can do what has become popular as of late among many small businesses–hiring a CPA firm to take care of your finances and do the tasks a CFO would complete. This method of managing your company’s finances is more affordable than employing a chief financial officer, a position that can cost upwards of $150k per year. Accounting firms do the work of accountants, bookkeepers, and CFOs combined, so you only have to look to one firm for all your financial needs,” says Inesa Ponomariovaite, Founder of Nesa’s Hemp.
After reading the advice from business owners and founders, you now have a well-rounded perspective on whether adding a chief financial officer to your small business’s team is necessary or not. If you choose to hire a CFO based on the reasons given by business professionals who recommend it, make sure to search around and find the perfect addition to your team. And if you choose to explore other financial management options, do your research so you can select the method that will take your company to further growth. Either way, as long as you are looking out for what’s best for your business you will make wise decisions.