How to Hire a Chief Financial Officer
The role of a chief financial officer has changed dramatically in recent years. In many growing businesses, the CFO serves as a partner to the CEO, helping outline strategy and drive the business toward its goals. Here are a few tips on finding the right person to serve as your CFO.
The role of a chief financial officer (CFO) has been evolving in business. No longer is the CFO only the senior finance guy or gal. In many growing businesses, the CFO is the partner of the CEO in helping lead the company to meet business goals. The CFO may supervise departments -- such as human resources or information technology -- in addition to handling the finances. The CFO may also help steer a company through mergers and acquisitions or an initial public offering. And, so, when hiring a CFO, it pays to really know what type of role you'd like the CFO in your business to fill.
"Selecting a winning CFO is one of the most important aspects of a CEO's job," says Amy Errett, a serial entrepreneur who has hired several CFOs in her various businesses. Errett is now a partner with Maveron, a venture capital firm started by investment banker Dan Levitan and Starbucks Corp. chairman Howard Schultz. "A great CFO is an integral part of creating a world-class management team that can make or break a business. Finding exactly the right person is a difficult task and requires a CEO's ability to understand the most important skills you are looking for in recruiting this critical job."
The following pages will cover how to determine if your business needs a CFO, what types of qualifications to look for in a CFO, and ultimately how to hire a winning CFO.
Hiring a CFO: Signs a Business Needs a CFO
Most small businesses don't start out with a CFO. It's often an overlooked role. In a small business, entrepreneurs and their staff do many jobs at once and someone usually takes responsibility for the finances. But as your business grows, there may come a time when the accounting, tax issues, and financial needs of your business necessitate hiring a CFO.
The big question is when a business needs to hire a CFO. Experts advise that there is no hard and fast rule but that business executives should look for certain signs.
"When to hire a CFO is when a company, especially a small to mid-sized company, has grown large enough to require accounting, treasury, and tax functions, as well as when strategic planning is needed for an organization," advises Marie Hollein, president and CEO of Financial Executives International, a professional association of 15,000 corporate financial executives in the U.S. "The smaller an organization is, the more hats you wear, whereas CFOs in larger organizations are really partners to the CEOs."
Smaller companies often don't have luxury of hiring one executive to only deal with numbers. They might also need that person to oversee operational pieces of the business, or to supervise departments, such as human resources or information technology. But the following are some guidelines for when your business' financial needs may warrant hiring a CFO:
- When your top-line revenue grows quickly. "When you start going above $5 million to $8 million in revenue, you start to have more complexity in your financial management," Errett says.
- When you need a formal audit. Whether to satisfy your business' stakeholders or a third party, such as a taxing authority or bank or venture capital investors, if you need to undertake a financial audit it's best to have a CFO in place.
- When you think your company might go public or engage in mergers or acquisitions. Audits are required by regulators and exchanges if a company wants to hold an initial public offering (IPOs). A CFO with experience with IPOs or mergers and acquisitions can help shepherd a company through the process.
- When you have more than 30 employees. The larger your business, the more complex your financial operation. Staffing is often a sign that you've grown large enough to warrant hiring a CFO.
Whether or not you need to hire a CFO -- and what the scope of responsibilities that CFO will have -- is very much dependent on what you envision in your company's future. "If you want your business to grow rapidly, go public, realize a liquidity event or stay in a steady state, those objectives will very much affect whom you recruit," Errett says. "Recruiting a CFO that has done these things before is essential. Match those needs with the skills required."
Dig Deeper: Is It Time to Hire a CFO?
Hiring a CFO: The Qualifications
After realizing that your business needs to hire a CFO, it's time to determine what qualifications you're looking for in that role. Traditionally, a CFO was simply the senior financial manager, the person responsible for preparing the financial statements, dealing with banks and investors, planning your tax strategy, and developing budget forecasts. But the job descriptions for many CFOs have gradually broadened through the years to include more strategic planning in steering the business toward its goals. There has also been a growing requirement for the CFO to have more accounting acumen, with the push for more corporate accountability through such legislation as the Sarbanes-Oxley Act of 2002, and to include enterprise risk management among their duties.
"A great CFO must be a great strategic thinker, strong manager, have a strong business sense and have excellent finance skills," says Errett. "A CFO's ability to put numbers in a business context is an absolutely essential part of what every business needs to be successful."
Before starting a search, you should develop a job description. "You should meet with the CEO to see what that CEO is looking for in that CFO," Hollein advises. "Sometimes that varies between companies if they are looking for more of a partner than an operational CFO. Determine your criteria and what the business needs are before deciding on the top qualifications."
Hollein identified the following as among the qualifications businesses might seek in a CFO:
- Leadership skills. At the CFO level, these skills are paramount, as this executive will lead teams and manage people.
- Experience in specific industry. This may be important to your business, although you may want to broaden these criteria to include hiring someone in a similar industry.
- Accounting skills. More and more CFOs are certified public accountants (CPAs). One reason this qualification may be helpful to your business is due to the changing regulatory environment, both in the U.S. and the push for global accounting standards. But Errett stresses that CPA credentials may not be necessary for every CFO.
- Communication and presentation skills. A CFO must have the skills to deal with a board of directors or outside investors to present complex information in a way that can be understood. This becomes more important if your business is considering going public, as the CFO will be presenting information to potential investors and the public.
- Involvement in industry organizations. This is an important way for a CFO to benchmark your business against best practices in the industry.
The list of qualifications may also be influenced by the size of your budget/compensation package. "The size of your budget will determine the CFO that your business can afford," says Errett. "In addition to a typical compensation package that should include salary, variable bonus (based on performance of the company and the CFO), the CEO must determine if your organization will give stock options to a CFO. Given the stature of this job in most companies, CFO's typically receive stock."
