5 signs your business needs a CFO
Bringing in your first finance director is a big decision for any business. Get this wrong and it could be a very costly mistake.
In my experience, business owners are far more likely to make an appointment later than they should, rather than too early. They look at the cost to the business rather than focusing on the value that the role brings.
Here I talk through five common scenarios that signal your business needs help with financial management and strategy - CFO Services.
5 signs your business needs a CFO
Lack of time
Out of your depth
Poor profit growth
Lack of planning
No sounding board
1. Lack of time
Starting out you expected to work hard; delivering the services that
your customers required. You probably also realised that there would be a significant amount of sales and marketing work required to attract these customers. However, you probably did not dream of spending long hours dealing with the financial side of your business. It is often only when this work is consuming too much time that owners bite the bullet and get some outside help.
If you could free up this time to use elsewhere in your business - where your skill set was a better match – how valuable would that time be?
2. Out of your depth
As your business grows, financial issues become more complex. In the absence of a professional CFO or FD you are likely to be acting as head of finance, making important financial decisions without the years of experience that a professional has attained. It’s not your fault. You're trying to fill a round hole with a square peg and this is never going to be a successful long term solution.
Do you regularly feel out of depth trying to forecast your cash flows, analyse the profitability of different parts of the business, monitor the results and deal with the stakeholders who require answers to financial questions?
3. Poor profit growth
Not every business wants to grow exponentially. Some are happy to return consistent results every year. But if you do want to grow your business and despite all your hard work and effort profit is not growing fast enough, you need to get to the bottom of the problem. And quickly. Often the issue is increased complexity as a business expands. If you provide just one service using one distribution channel at one price it will be fairly simple to understand the business model. But as companies grow they often extend the range of services, sales channels, distribution channels and even geographies. At the end of the year it’s easy to measure the overall profitability, but without some analysis it can be impossible to understand where profits are being made and which activities are making a loss.
Do you know which areas of your business are making good profits and which are not?
4. Lack of planning
You probably wouldn’t go on holiday without knowing where you were going to stay and how you were going to get there. But most small businesses do not spend enough time planning for the future. They may have produced a formal business plan in order to get a bank account or loan at some point, but according to the University of Kent only about 5% of SMEs are managing their businesses using a plan.
Initially, when the business is relatively simple this may not be a problem. As it becomes more complex though, planning becomes more important to ensure that progress is made towards the desired goals or to give an early warning that things are going wrong so that corrections can be made. A relatively simple plan can make a big difference.
Often when I talk to small business owners they know that the lack of a plan is holding them back, but they just don’t have the in-house skills and experience to produce a coherent plan to use as a benchmark. Do you need a plan?
5. No sounding board
Managing a small business is usually a lonely occupation. Until it grows to a significant size there is not going to be a layer of senior management who can help share your problems. The MD is normally surrounded by employees who are not experienced in managing businesses and have a very different (employee) mindset. Larger businesses are managed by boards of directors where skills and perspectives are deliberately blended so that ideas can be bounced around and sense checked.
Would a second opinion from an experienced professional improve your business decision making?
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