1479: Do You Really Need a CFO by Dr. Jeff Cornwall on Entrepreneurship & Business Decisions

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[00:00:26] This is Optimal Work Daily. Do you really need a CFO?

[00:00:30] CFO by Dr. Jeff Cornwall of Dr. JeffCornwall.com

[00:00:35] Maybe it's time for you to get a controller. I have said that to entrepreneurs more than once over the past few months.

[00:00:42] In every case, all of these companies had already brought in a person designated as CFO, Chief Financial Officer, to lead the financial aspects of their company.

[00:00:51] And in every case, that was the wrong type of person to hire for the specific needs of these companies.

[00:00:57] What should be your first hire?

[00:01:00] Entrepreneurs who experience significant growth in their business may eventually hear this advice, be it from their CPA, their banker, or other entrepreneurs.

[00:01:09] Financial management in a growing business can become strained. Eventually, the time will come when the entrepreneur needs to upgrade certain members of the team.

[00:01:17] The first instinct of most entrepreneurs seems to be to hire a CFO. In some cases, this may be the right choice, but in many situations, a controller or even a senior-level bookkeeper might be what's really needed.

[00:01:29] Let's assume what you need to get done is the following.

[00:01:32] Keeps accurate records of financial transactions and also creates basic financial statements, income statement, and balance sheet using accounting software.

[00:01:42] Performs basic accounts payable management.

[00:01:45] Make sure bills get paid and records these entries into the accounting system.

[00:01:50] Performs basic accounts receivable management.

[00:01:53] If the business has to send invoices to customers to receive payment, sends out invoices monthly.

[00:01:59] If this is the list of functions that need to be taken care of, you really need a senior-level bookkeeper.

[00:02:05] These are the functions that would be in the job description of an experienced bookkeeper.

[00:02:10] What comes next?

[00:02:11] As a company grows and becomes more financially complicated, a controller adds more horsepower to the financial management team.

[00:02:18] Depending on the nature of the company, this often happens when the business grows to about $1 million to $3 million in revenues.

[00:02:26] Although I have seen companies much larger than that get by with a solid bookkeeper and a hands-on outside CPA.

[00:02:33] A controller does the following tasks.

[00:02:36] Performs all of the functions of a bookkeeper or supervises the staff that does.

[00:02:41] Creates customized daily, weekly, and monthly financial reports to meet the specific needs of a specific business.

[00:02:47] Creates and maintains financial software.

[00:02:50] Creates basic cash flow management of the business.

[00:02:53] Major cash flow decisions should still be made by the entrepreneur, however.

[00:02:58] Good controllers can pay for their salaries in a growing company.

[00:03:02] They do this by helping to create needed financial systems, by keeping costs under control, and by helping to manage cash flow more effectively.

[00:03:10] When do you need a CFO?

[00:03:13] One situation that may require a CFO is if a business must raise a significant amount of outside funding to get off the ground.

[00:03:20] This is particularly true if the CEO, founder, does not have a strong financial background.

[00:03:26] Some businesses may grow to the point that they need a CFO, but this is not true for every business.

[00:03:32] Many very large organizations don't have CFOs.

[00:03:34] If the capital needed for growth must come from complex debt instruments, private equity, or venture capital, a CFO is likely to be an important addition to the leadership team.

[00:03:45] A CFO does the following tasks.

[00:03:48] Performs all functions of a controller or supervises a staff that does these tasks.

[00:03:53] Structures and negotiates complex financing, including both debt and equity.

[00:03:58] Creates complex financial projections to aid in strategic decision-making, and is an active player in the strategic management of the business.

[00:04:07] Manages banker and other financial relationships for the business.

[00:04:11] The risks of adding the wrong position

[00:04:14] One risk of hiring the wrong person is that you end up overpaying for what you really need to get done.

[00:04:20] The typical salary of a controller can often be at least twice as much as the salary of a senior bookkeeper, and an experienced CFO earns easily twice as much as a controller.

[00:04:31] If a CFO does not have enough work to do in the financial management of the firm, idle hands can become the devil's workshop.

[00:04:38] I have seen CFOs who become overly involved in the strategic decision-making that should be the domain of the founders, sometimes creating unnecessary dissent and conflict.

[00:04:47] The titles bookkeeper, controller, and CFO often get tossed around rather loosely.

[00:04:53] Many entrepreneurs give the title of CFO to people who are not qualified to be one.

[00:04:58] They may do this to help bolster the external perception of the company or simply to offer a nominal reward to someone in place of higher salary.

[00:05:06] However, to bankers and investors, titles within the financial management of a business have specific meaning.

[00:05:12] If you give the title of CFO to someone with the knowledge and qualifications to be a senior bookkeeper, you may destroy the credibility of your business with bankers and investors.

[00:05:22] Finding the right person

[00:05:24] Use your advisors, CPA firm, your banker, and your network of experienced entrepreneurs to determine what type of financial professional your business actually needs.

[00:05:35] Once your needs are clearly established, these same people can also help you find a pool of candidates to interview.

[00:05:41] You just listened to the post titled, Do You Really Need a CFO? by Dr. Jeff Cornwall of drjeffcornwall.com.

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[00:06:54] And thank you to Dr. Jeff for giving us permission to narrate from his blog.

[00:06:59] Growing up, entrepreneurship and small business was normal dinnertime conversation at the Cornwall household.

[00:07:05] This set the stage for a decades-long career pursuing entrepreneurial ventures and sharing his knowledge in the classroom.

[00:07:12] Jeff has spent more than 40 years as a serial entrepreneur.

[00:07:15] In the 1970s, he started several small businesses and was involved in various family ventures.

[00:07:21] In the late 1980s, following several years in academics, Dr. Cornwall co-founded Atlantic Behavioral Health Systems in Raleigh, North Carolina,

[00:07:29] and spent nearly a decade leading the company as president and CEO.

[00:07:34] After growing to more than 300 employees, he and his partners sold most of their healthcare holdings.

[00:07:39] After the sale, Dr. Cornwall decided it was time to return to the classroom to share his experience and knowledge with aspiring entrepreneurs.

[00:07:47] He's now the president and CEO of the Entrepreneurial Mind, and his blog was named one of the 100 best websites for entrepreneurs by Forbes magazine.

[00:07:56] So definitely worth checking out.

[00:07:58] Come by drjeffcornwall.com for a lot more articles.

[00:08:03] All right, that should do it for today.

[00:08:04] Hope you have a happy Friday and start to your weekend.

[00:08:07] And I'll see you back here tomorrow where your optimal life awaits.

[00:08:10] Hope you have a happy Friday and start to see you next time.