Imagine you are the owner of a company with $5 million in sales. It has been operating for a number of years, and is profitable, but you want to grow the business.

Say you would like to double sales over the next five years. Before you start the growth process, you should ask yourself: why double sales? What will a doubling in sales mean to profits? What cash is needed to double sales?  Quite often, you know that you are profitable but are not satisfied with the level of profits and you do not know exactly why profits are where they are or what should be done to increase them.

An accountant records daily transactions and prepares monthly financial statements, but he does not give the owner guidance as to how to double profits over the next five years. A doubling of profits will take the business to the next level and involves a number of different steps. You need a key financial person help you develop them. A CFO (Chief Financial Officer) is that person. Here are three reasons you should hire a CFO:

1. A CFO drives the numbers instead of recording the numbers
A CFO determines what is driving current sales and profits and analyzes where future sales and profit growth will come from. For example, a company may often receive 60-80% of its profits from 20-40% of its customers or product lines. But determining just how profitable a certain customer or product line is not always straightforward.

A CFO will also ascertain how costs will change once production reaches a new level, e.g. how many new staff will have to be hired and whether there will have to be capital expenditures and/or acquisitions. In order to increase sales, a company may need to increase staffing and maintain it a higher level in order to achieve higher committed levels of sales. Barring increased productivity of labour, this can mean higher labour unit costs. Therefore, what business improvement processes must be implemented and what productivity enhancing capital expenditures will have to be made?

Finally, a CFO will develop key performance indicators to measure the progress of the business. (A performance indicator measures a company’s success in a particular activity, e.g. percentage of customers retained in a period). If a company has determined what drives profit growth, these indicators need to be measured.

2. A CFO looks for obstacles and opportunities, and ways to overcome and capitalize on them.
Are there any unforeseen risks? New insurance requirements? New legislation or competitive threats? Will you need financing? Are there acquisition opportunities? How you evaluate and finance them?

3. A CFO is a key support person or ‘wingman’ to the business owner
There are numerous important matters to deal with as the company grows such as the deployment of effective internal controls and procedures, the hiring and development of staff, and the development of effective tax strategies. Are you as the owner ultimately going to sell the company? A CFO would be the person you turn to discuss that option.

For the above reasons it is better to engage a CFO sooner than later. A contract or part time CFO allows you to integrate a senior level executive into your organization without the price tag and commitment of a full time CFO.

If you would like a fresh look at the financial management and growth opportunities of your company, please contact us to talk.