Let’s face it: hiring a CFO in 2019 is not straightforward. Now more than ever, the hypergrowth and venture capital principals that have infiltrated mainstream corporate culture have a weighted focus on cash flow and overall financial vision with the nature of these roles including more touch-points and interactions than ever before.
You’ll likely know you need a CFO when you find yourself taking one step forward and two steps backward. When you’re spinning the hamster wheel of tracking spend and structuring audit trails retroactively, it’s time to hire. But you need someone to be proactive about spend management and the allocation of capital.
But when exactly should you hire a CFO? And what do you ask them? In a general sense, the core function of a CFO is in tracking cash flow, strategizing decision making around spend, and financial management.
What does a CFO do exactly?
From Investopedia, “The CFO is responsible for managing the fiscal activities of a company and adhering to generally accepted accounting principles (GAAP) established by the Securities and Exchange Commission (SEC) and other regulatory entities. CFOs must also adhere to regulations such as the Sarbanes-Oxley Act. This includes provisions such as fraud prevention and disclosing financial information.”
While this outlines the main responsibilities of a CFO, the confusion intensifies. Different companies at different stages of growth ask for different accountabilities. When hiring the CFO of your organization, it’s important to maintain clarity with core functions and metrics they’re accountable for.
Consider experience and compensation
There isn’t really a set accreditation or key flags of experience related to this position. The CFO of an early growth startup has a different day-to-day compared to a CFO of a Fortune 500 company. CFOs of all kinds have been touted as being an integral key early hire for organizations. But such value does not come without a hefty price tag.
The compensation demanded by CFOs and their experience to match usually make them unrealistic pipe dreams for early growth stage organizations, which leads these companies to either stretch the capacity of a CFO across a few less experience accounting roles, or hire an interim CFO (individually or a part of an agency).
This is surely a more frugal way to track spend and gets the job done. But a CFO’s responsibilities don’t make for a role to cut your teeth on. Mistakes in compiling audit trails, managing the fiscal activities, and general accounting strategy can be costly.
You’re a brand ambassador, too
Paul Riegel has decades of experience leading finance groups and operations of large government, public and private organizations and is now based in Vancouver where he currently sits as the Principal of the CFO centre in Vancouver.
Paul’s life in the driver’s seat of spend controls made him a great resource for our research. He expressed a key intangible commonality in his encounters with all kinds of CFOs in a recent interview on the Spend Culture Podcast:
“As a CFO you’re a senior leader but more importantly you’re a brand ambassador for your particular organization, as you have many many external contacts. Whether it be shareholders, directors on the board as well as bankers, lawyers and customers—you’re a brand ambassador and whoever you reach out to, you’re [constantly] representing your brand.”
Here, Paul debunks the popular assumption that a CFO is a behind-the-scenes finance position. Financial controls usually mean more touch-points with investors, clients, team members, and legal teams. It calls for someone to be comfortable constantly representing the best interests of the company. Especially under continually rotating expectations with different relationships.
Look at their past experience with Spend Culture
To fairly assess a candidate’s resume and past experience, you need to identify the specificities of their past spend cultures. You then need to know how it matches up with the prospective spend culture they are entering. For instance, a CFO with experience in an Agile environment will likely embrace adaptability and innovation in their tools and processes. From our existing analysis on spend culture, “Organizations that are agile attempt to balance strategic decision making and cooperation between stakeholders.”
It can be challenging to hire a CFO that needs more specific estimates on project requirements. For an organization that expects its CFO to be more deadline-oriented and operate with a more rigid structure, it should look for more administrative experience in its portfolio. Seek a role that proves they can be strategic when it comes to making organizational decisions. Also, make sure the cost and benefits are identified before taking action.
Balance reporting and business intelligence
Across all spend cultures, maintaining a balance of reporting and business intelligence is key for all CFOs. The collection, analytics, and subsequent decision-making are a routine CFOs should be well accustomed to, which is why many industry veterans subscribe to the idea that a CFO is only necessary at a certain scale. Some experts maintain that it only truly becomes necessary at around the $10-15M ARR mark, or for venture capital-funded startups, during your Series B growth stage.
These ambiguous and adjustable watermarks are speaking to how much your company is spending. It also speaks to what your company’s spend culture is, and what your growth expectations are.
Hiring a CFO is dependant on your company. It’s therefore important to diagnose your own spend culture to know what kind of CFO would best fit. Hiring for financial controls and due diligence is very much a step-by-step incremental process. These roles will look different depending on your growth stage, tech stack, and industry.
The best way to find solutions is to know exactly what your problems are. That’s why it’s important to assess where you are on your organization’s financial journey by understanding your spend culture inside out, and start to detail the qualities of an effective candidate—before looking for a tailored organizational fit.