Does my company really need a CFO?

The role of financial management is the most common theme amongst the reasons why companies struggle to succeed or even fail. Whether it’s managing cashflows, funding and financial risks or incorporating finance into strategy and planning, the importance of sound financial management for companies cannot be overstated. This article will help business managers and owners to understand why companies need good CFOs and introduce an option for accessing this critical skillset without committing to a full-time resource.

TL;DR:

• CFOs have a broad scope of responsibilities, ranging from operational and administrative activities to tactical and strategic activities, that help steer the business towards long term success.
• As companies grow their financial needs become increasingly complex and there’s a point where good financial management becomes the differentiator for success.
• An experienced finance professional on a full-time basis is an expensive investment for companies that aren’t operating at a scale or complexity that requires a dedicated resource.
• Fractional CFOs provide companies with professional financial management expertise at a fraction of the cost of a full-time executive.

If you’re the Owner or Managing Director of a business you’ll know how challenging it is to grow your company year after year. It’s an all too familiar scenario: your sales growth is amazing but the bottom line is flat, or performance is great but where’s all the money. Perhaps your strategy is working but you don’t have the capital to sustain your momentum; or maybe the unpredictability of your cashflows makes it difficult to pursue an expansion opportunity. Whatever your situation, you’ve experienced the struggle and frustration of navigating financial complexities in your business. ?

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The corporate sector has the luxury of appointing specialists for each unique complexity – the executive team is comprised of “Chiefs” for Finance, Marketing, Human Resources, Technology, and the list goes on. They understand that professional expertise applied to a dedicated field yields the best results. For this reason, corporate boards appoint finance professionals as Chief Financial Officers (“CFO”) to take care of the financial management responsibilities.

Historically, CFOs were tasked with administrative financial responsibilities such as accounting, financial reporting and financial controls, but the market has learned that the true value of a CFO is in their ability to integrate finance into every aspect of the business. Great CFOs bring data-driven insights to the table when making decisions on everything from operating improvement to strategy. They ensure that all divisions contribute positively to the business and they identify, and eliminate, the inefficiencies that prevent the company from achieving it’s objectives. The insights from a good CFO are integrated into every other facet of the company.

The truth however is that many companies are unable to hire a dedicated professional, either due to budget constraints or for the simple fact that they just don’t face such complexities on a consistent basis to keep a dedicated executive busy for 40 hours a week. As a result, the MD or CEO usually assumes responsibility for financial leadership or perhaps the company looks to their Business Controller or Accountant for these insights. This approach can serve a company well, but growth brings incremental complexities and, since some responsibilities like cashflow and liquidity management are critical for the business to survive, the stakes could not be higher. At some point, a lack of technical financial skills and expertise becomes a limiting factor for every company.

Introducing the Fractional CFO. Fractional CFOs are finance professionals that provide owners, investors, CEOs and managers with the knowledge, expertise and strategic insights of a CFO without the need to hire one full time. A Fractional CFO has the skills and provides the most critical services that the company needs.

Some companies hire a Fractional CFO for basic financial management disciplines such as financial performance insights, cashflow management and budgeting. Often startup and scaleup companies use Fractional CFOs to provide investors or lenders with assurance that a dedicated expert is on hand to manage their invested capital and to communicate with these stakeholders, especially regarding financial reporting. There are companies that use Fractional CFOs for specific projects like raising capital, making an investment decision, capital structure optimisation, or acquisitions and disposals. With a Fractional CFO the scope of work is agreed upfront setting clear deliverables with the option to scale up or down depending on the evolution of its needs.

So, you need a CFO, but do you hire a full-time executive or will a Fractional CFO work for you? Ironically, a CFO would advise on the relative merits of decisions such as this. To help simplify this decision, I’ll suggest two simple questions:

1.???? What do you need?

There are a myriad scenarios that describe when and how a CFO is the key contributor to a successful outcome, but whether you’re looking for a permanent hire or a part-time expert, there is a clear need to define the requirements of this role. This first step also forces a company to consider which activities have the greatest impact so listing the requirements in order of priority allows you to make sense of step two.

Typical CFO responsibilities might include accounting and finance controls, Budgets and Forecast, cashflow management, liquidity optimisation, financial reporting, integrating finance with business strategy and planning, financial risk management, operational optimisation, finance projects and stakeholder engagement (Banks, Shareholders, etc). This list is not exhaustive and each company will need something different.

2.???? What is your budget?

A full-time executive can be an expensive resource once you factor salary, benefits and incentives. Although a good CFO can be worth their weight in gold, even a good CFO can be too expensive depending on the circumstance. As you consider this question it’s useful to also reflect on the response to the first question. The more you need, the more it will likely cost you and similarly, the more specific your need is, the more likely it is that a part-time professional is the best alternative for your company.

According to Payscale.com , an entry-level Financial Manager in South Africa (typically a Commerce graduate) earns an average of ZAR 395k annually in 2024 whereas an experienced Financial Director in South Africa earns an average of ZAR 1.9m annually (including incentives) in 2024.

As a final step, it’s also worth exploring the scalability and optionality of the Fractional CFO model. Not only does a Fractional CFO offer scalable services it also introduces optionality that can be particularly beneficial for your company. Perhaps you have a talented, but inexperienced, resource that can be coached by a seasoned professional as part of a development plan to grow in-house expertise; or maybe you’re unclear about exactly what to expect from a permanent CFO. If your objective is growth, you’ll likely need a permanent CFO in time, but a Fractional CFO may be best suited for where you are right now.

Conclusion

Every company stands to benefit from professional financial expertise, whether in-house or external, to help them navigate the challenges and complexities of their operating environment and circumstance. When the CEO or MD’s capacity is consumed by financial management responsibilities, or the company relies on their Accountant or Business Controller for insights on strategy, it’s immediately evident that the services of a financial expertise will be a significant driver for growth and improvement.

With the emergence of Fractional CFOs this professional financial expertise is now considerably more accessible to companies of all sizes. Business Owners or managers now have the flexibility of defining the specific deliverables that will have the greatest impact to their business and then hire a Fractional CFO to deliver exactly what they need. As their needs evolve they can scale up the service and leverage the flexibility and optionality of the Fractional CFO model to maximise the benefit to their company. ?