One of the major reasons why start-ups shut down within two years of their launch is poor financial management. Strong financial management is crucial for every company to manage its monetary flow and meet its goals. For this reason, companies seeking to stand out among their competitors tend to invest in hiring a competent Chief Financial Officer (CFO).
As per the Institute of Management Accountants’ report, the upcoming three to five years will depict an increase in the demand for CFOs in the market. And it’s only natural that CFOs will be in high demand since they play an indispensable role in boosting profitability, attracting investors, and satisfying shareholders.
Now, let’s discuss why organizations should hire CFOs in today’s time:
1. Overseeing financial activities
Most business owners are burdened with the crucial tasks of steering their organization to new heights, expanding operations, and growing the market share. In the midst of it all, managing and monitoring every business function becomes daunting and time-consuming. And that’s precisely why the C-suite exists. It allows company shareholders (owners) to divide essential business functions among competent executives, such as CFOs.
A CFO dives into the nitty gritty details of all the financial aspects of the business and steers the company towards course correction whenever necessary. By leveraging their leadership skills and capabilities, CFOs manage entire departments of diverse teams, ensure smooth cashflows and investment returns, and boost profitability. More importantly, they oversee annual budget creation, devise financial forecasts, and analyze the company’s financial strengths and weaknesses. Budget creation and financial forecasting are critical functions that begin with the CFO before being handled by the finance team.
Selecting a highly qualified professional with impressive academic credentials is crucial when seeking CFOs. Look for candidates possessing higher education, such as an MBA or EMBA with years of extensive experience. When comparing MBA vs EMBA, prioritize EMBA since it prepares individuals for executive roles and instills the skills and capabilities necessary to lead organizations.
2. Smoothing out cashflows
More than 60% of businesses fail within the first three years because they’re unable to control the cash flow. And this serves as a huge challenge since proper and timely cash flow is crucial to the smooth running of other business operations. For this reason, you need a competent executive to monitor and control cashflows. If you hit a cash crunch and devise contingency plans at the eleventh hour, it won’t bear satisfactory results. Eventually, you’ll have to halt operations since every function runs on cash flows.
A CFO, in this regard, can handle all the aspects of the cash flow, approaching debtors and paying lenders.
3. Boosting profits
While your business may already be churning out lucrative results, achieving the highest financial objectives remains a mere plan without the intervention of a CFO. A CFO’s responsibility is to make accurate reports, predict profits and losses for each period, and devise strategies to boost profitability. They can help you get quick returns and reduce expenditures to ensure the company doesn’t break down.
Utilizing their years of experience and exceptional skillset, CFOs can pull companies out of bankruptcy and take them to unprecedented heights.
4. Reducing risks
No matter which industry/field you belong to, your business is always at the risk of reduced profits, market downturns, and bankruptcy as a worst-case scenario. Here, it’s a CFO’s job to proactively overcome the risks and set strategies.
Every CFO’s primary responsibility is to identify risks, devise strategies to tackle them and ensure proper risk mitigation.
When to hire a CFO?
The old rules of business state that companies should wait to hire a CFO until they have reached about $100M in their total revenue or are preparing the company for an IPO. Fortunately, that’s no longer the case or the best course of action for any organization – big or small. Since the finance department contributes the most to companies in today’s unstable economy, it is crucial to hire a CFO early.
CFOs are not only hired to tackle financial data management but are also crucial for financial forecasting, modeling, and implementing different financial strategies in the company. Due to major shifts in trends and the economy, start-ups can benefit greatly if they hire a CFO during the earlier years of their launch.
Nevertheless, hiring one too early can also cause issues for the business. During the beginning years, it is appropriate for a key member of the founding team to handle the business finances. But once they become too busy for it or their expertise is needed elsewhere, it is time to hire a CFO who can handle the company’s financial activities.
But remember that you should consider the company’s funding while deciding because hiring a CFO can also require a significant amount.
What to look for in a CFO?
Finally ready to hire a CFO? It can get significantly puzzling what to look for in a candidate, especially if you are hiring for the first time. However, a competitive CFO should have some of the qualities and skills listed below:
- Problem-solving and analytical abilities
- Leadership and management skills
- Risk assessment and mitigation skills
- Effective communication and teamwork
- Emotional intelligence
- Tech skills
- Strategic mindset
- People management
Unarguably, the list of essential skills for CFO will stretch even further. However, based on your organization type and the market you’re serving, determine which skills are the most critical and look for them when hiring a CFO.
Having a CFO is crucial for your company to ensure smooth financial operations, expand revenues, and enhance profitability. They can assist in implementing the right financial structure to keep the company’s cash flow consistent, if not improving. Likewise, they serve the key role of expanding your investor pool and churning out lucrative results yearly.
So, if you’re still in your unstable years and can’t afford to hire a full-time CFO, you can acquire CFO services to fulfill your needs. You don’t need a huge corporation to acquire the benefits of a CFO. But several other financial consultancy providers can offer flexible benefits that suit your needs and fulfill your demands.