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One distinguishing characteristic of nearly all entrepreneurs is the passion they bring to their businesses. But whether you’re a skilled butcher, a terrific baker, or the best candlestick maker in town, there are functions of your company that you’ll need help with. And there’s no aspect of running a small business that makes this more apparent than staying on top of your finances.

That’s because as a small business grows and evolves, it requires a set of financial skills and talents that are often beyond what most bookkeepers or even controllers do. To get a more in-depth understanding of your firm’s financial health and a holistic view of how it can be run more profitably, it often takes the skills of a chief financial officer. But how do you know when it’s time to bring one onboard? We spoke with several small-business experts to identify five signs that your company needs a CFO.

  1. Not all customers are created equally, says Matthew Bud, managing partner of the Financial Executives Consulting Group. Just because new business is coming through the door, it doesn’t necessarily mean you’re making money on it. “Many small businesses say yes to a new client, but don’t understand how to evaluate the costs associated with servicing that customer,” he says. A CFO can determine the cost structure of each new piece of business and--more important--what your company needs to charge to actually make money on the work you’re doing.
  2. Whether it’s a bank loan, a line of credit, or an equity infusion from an investor, raising capital requires more complex and frequent financial reporting. A CFO operates in the heart of all the data flow into and out of a company and understands the reporting requirements of banks and investors. And keep in mind that taking money from an equity investor essentially means taking on a new partner as well, explains Shelley Lombardo, chief operating officer of corporate advisory firm Evergreen Advisors. “A CFO can make sure that the founder’s existing stake in the business is protected, and that his or her role going forward is spelled out,” she says.
  3. Adding to your business with a strategic alliance or acquisition is filled with risks--both good and bad. Are you buying the entire corporation or just the assets? Will the acquisition expand the geography of where you do business, or the regulations under which you operate? The answers will determine not only how the purchase is valued, but also how your company’s structure and workforce might need to be altered. “A CFO is vital in this process,” says Bud. “A good one will understand all the steps along the way and make sure things stay on track and that you don’t overpay.”
  4. In our ever-connected world, small businesses are increasingly expanding outside the U.S. While moving into new markets can turbocharge sales, doing so involves a more complex set of operating procedures, including tariffs, increased shipping costs, and varying country regulations. A CFO, says Lombardo, can help your business navigate this process to make sure this kind of expansion truly enhances the bottom line.
  5. You’ve been operating your company successfully for a while, and now it’s time to reach for the next level. Maybe that means expanding your product line or the kind of services you offer, or hiring additional employees. A CFO can provide the CEO with a strategic partner in this undertaking. Because CFOs are skilled at evaluating business models for soundness and profitability, they are a good resource to have when contemplating a dramatic shift in your company. And they don’t need to be on staff or engaged full-time, says Lombardo. “Even if they’re working for you four hours a month, that’s fine,” she says. “The important thing is that you’re communicating with them all through the month, so that you’re not constantly playing catch-up every time you talk.”

 

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Published on: Jun 29, 2018