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By Michael K. Menerey, Partner, CFO Edge, LLC
There is often uncertainty among business owners and entrepreneurs when it comes to determining whether they need the skills of a controller or a CFO. These are critical, high-level financial positions in a small or mid-sized business, so it’s important to make the right decisions about these resources.
Reaching Certain Size Thresholds
The decision about hiring a high-level financial professional hinges on many factors and varies from one company to the next. Generally, companies need to reach certain size thresholds before it’s financially feasible to make such a hire. A well-qualified CFO, for example, will likely command a six-figure salary and an attractive benefits package, so you need to have the financial resources to accommodate this. This often translates into annual revenue of $50 million or more.
A CFO brings a high level of analytical and strategic skills to the position beyond number crunching. CFOs provide strategic financial direction for the company, in addition to providing performance measurement reporting that helps the CEO run the business more effectively. CFOs help CEOs improve planning, modeling, risk management and forecasting and, thus, make better business decisions and manage resources better. A CFO also maintains and develops critical relationships with existing and prospective investors and lenders.
A controller, on the other hand, generally brings a much higher skill set than a bookkeeper and is primarily responsible for managing the daily financial affairs of the business — maintaining internal controls, the general ledger and the day-to-day banking relationship, and preparing GAAP financial statements. A lower size threshold is usually required in order to hire a controller — between $10 and $20 million in annual sales. A controller, however, generally has no experience in the financial markets and may have minimal experience with cash management and forecasting, so in addition to not having the time available to provide CFO expertise because of his/her daily duties, frequently also does not have the training or experience to provide it.
Hiring a full-time controller or CFO before your company has the volume of work and/or the resources to support the position can end up being a very costly proposition for the bottom line, and the controller or CFO will likely become bored quickly and leave the company, which is disruptive.
An Alternative: Hiring an Outsourced CFO Services Provider
If you’re not sure your company is ready to hire a full-time controller or CFO, one alternative is an outsourced CFO services provider to work closely with your existing financial staff (with or without a controller) on a part-time basis to provide oversight of the accounting function; evaluation and initiation of internal controls; risk management guidance; and strategic expertise. This can be a very cost-effective solution in the right circumstances. Another alternative below a certain size is to have an outsourced CFO services provider provide your entire accounting department, bringing outsourced bookkeeping and controller expertise in addition to their CFO skills.
One of the benefits of this approach is that you will gain the expertise of a seated CFO without having to pay a high full-time salary, benefits and other overhead. You also avoid the costs and headaches of employees while having the depth of back up the outsourced bookkeeping service provides. An outsourced CFO can add tremendous value to your company by delivering financial consulting on strategic vision, costs, profits and other high-level strategic financial analysis, as well as guidance to help drive growth, profitability and shareholder value, while also communicating effectively with investors, lenders and others.
This approach offers the best of both worlds:
- You retain your controller without burdening him or her to perform duties they aren’t qualified for — and are getting burned out trying to accomplish.
- You gain the cost-effective expertise of an experienced CFO on an as-needed basis.
- Your internal management reporting is improved, which will help grow your profits.
- You acquire a strategic, on-call partner who can advise and collaborate with you on future decisions about running, funding and growing the business.
Concluding Thoughts
The decision about hiring a high-level financial professional hinges on many factors from one company to the next. Hiring a full-time controller or CFO before your company has the volume of work and/or the resources to support the position can end up being very costly. One alternative is to hire an outsourced CFO services provider who can work with your existing financial staff on a part-time basis. With this approach, you will gain the expertise of an experienced CFO without the full-time CFO’s costs.
Mike Menerey is Partner at CFO Edge LLC and can be reached by phone at (909) 931-1354 or by visiting www.cfoedge.com.
