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."
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."
FEI conducts an annual Executive Compensation survey, which provides a year-to-year comparison of compensation for financial professionals in both public and private companies. The latest survey, releases in April 2009, found that the base salaries of CFOs remained proportionate to companies' annual revenues. For public company CFOs, the average annual compensation was $410,100, of which $296.800 was base salary. For private companies, the total compensation was $257,800, of which $199,600 was base salary.
Hiring a CFO: Recruiting Candidates
Now that you have developed a job description and a budget for compensating your future CFO, you need to turn to the task of finding suitable candidates for your business.
The first question you need to decide is whether to use a recruiter or not. This is a difficult decision and one that should be decided by a cost/speed analysis, meaning weighing your budget and how quickly you need to fill the position. If you need to fill this job rapidly and the business can absorb the fees associated with using a recruiter, it makes sense to go that route. It is also a "buyers" market -- there are many more candidates than there are jobs these days -- and a recruiter can help you wade through resumes from people who don't have the right qualifications.
Benefits of using a recruiter:
- Recruiters may already have a pool of candidates.
- Recruiters know how to find suitable candidates, vet them, and close the deal.
- It may be more time efficient to use a recruiter. "You hopefully get to the bulls eye faster than you could by yourself," Errett says.
- The time you don't have to spend looking for CFO candidates you can spend running your business.
- Using a recruiter forces you to develop a detailed job description for what you want in a CFO.
Downsides of using a recruiter:
- The cost associated with recruiters is typically 30 percent of the CFO's annual first year compensation, Errett says. Included in this fee is the guarantee that candidates will be replaced if they do not work out within a three- to six-month period. But, still, that fee may be out of the range of many small businesses.
- Not all recruiters are created equal. If you don't choose the right recruiter, you could burn up a lot of time not finding the right candidate.
- If you're not clear about what you're looking for to the recruiter, you may also waste a lot of time -- or end up spending a lot of money to hire someone who isn't right for your business.
If you choose to not use a recruiter, using your personal and professional network to find the right candidate can be very effective. Developing a precise job description and circulating that to your network can reap positive outcomes. These days, that has become even easier with the help of online social networks, such as LinkedIn, Facebook, and Plaxo, Errett says. "In my everyday experience, when I'm looking at a deal or interviewing as a board member, it is very rare that I find a candidate for whom I don't know 10 people who know that person," Errett says. "This is where the power of social networking and community is fascinating." In addition, professional organizations, such as FEI, post job openings to members and those organizations may be worth contacting if you have an opening for a CFO.
Dig Deeper: Trying the Rent-to-Own Model to Hiring a CFO
Hiring a CFO: Interviewing Candidates
Whether you work through a recruiter or not, you want to come up with a short list of candidates to interview. Face-to-face meetings are essential to make sure that the CFO will be a personality fit with the rest of your company leadership.
The CEO must determine who are the right management team members and outside resources to conduct the interviews with candidates. Often, key team members that will work directly with the CFO are included in this process, as well as board members and any trusted external advisors, Errett says. She advises taking the following steps:
- Determine interview content. Each interviewee should be given an interview outline that highlights the core aspects of what you are trying to learn from the candidate. This should include a technical skills assessment as well as a cultural fit assessment.
- Interview feedback. Each interviewer should return a candidate assessment form in a timely manner and participate in a feedback meeting that discusses the strengths and weaknesses of each candidate. The outcome of this meeting will be a decision on the candidate of choice.
- Reference checks. The reference check portion of this process is critical and should be the role of a recruiter if one is used. Whether or not a recruiter is not used, it is critical to thoroughly check references. You also want to use backchannels and personal references in checking up on a candidate, and avoid relying only on references provided by the job candidate.
"If everything checks out, often times you do a credit check and sometimes background checks are done," Hollein says. "You need to do due diligence, especially now."
Once you focus on your first choice to hire as your new CFO, the CEO should make the direct job offer and answer any questions/concerns that the candidate has. The positive chemistry between a CEO and CFO is really the key to a successful working relationship, Errett says. "These two jobs work so closely together that it is absolutely essential to have a very strong bond between the roles."
As in any recruiting effort, bringing a new employee on board in a positive way is critical to the long-term success of the person. When bringing in a new CFO, you most likely will draw up an employment contract spelling out what is expected of the candidate and how they will be compensated. Once, again, the CEO must take a leadership role and be out front in this process by positioning the CFO as a senior and important part of the company's management team and future. The more the CEO establishes their unwavering support for the CFO, the greater the chance of success.
"That's when the hard work starts," Errett says. "These are hugely important jobs. You're inviting someone into your family, your sandbox, and having a way to integrate them well is very important."
After all, you don't want to be recruiting a new CFO every year. "It's expensive to have to recruit. You don't want to do it frequently. You want to do it right and hire the right individual, even though there's never a 100 percent guarantee," Hollein says. "You want to make sure that the candidate will help achieve your goals, help grow the firm, and meet what your strategic goals area as well."