Why You Haven’t Pulled the Trigger on Hiring Your First CFO

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There’s a very common arc to the story of how most owner-managers come to decide to hire their first CFO.

Accounting 101

Pretty much all big businesses start out as small businesses. And pretty much every owner-manager I’ve ever met knew exactly what was going on in every aspect of their business back in the early days, from sales pipeline to inventory, to cost of product / services to weekly cash balance in the bank.

When they’re starting out, most owner-managers rely on an out-sourced accounting service. As the business starts to take off, the owner-manager will hire a full-time accountant but they still have a handle on all aspects of their operation.

Where Did All These Customers Come From?

However, if you’ve built a better mousetrap, the world will have a habit of beating a path to your door. The volume and complexity of those aspects of your business you’re used to dealing with yourself – cash flow, metrics, future financings etc. get to the point where stuff begins to fall of the table and you start to think “wouldn’t my life be easier, and wouldn’t my business benefit quite a bit if I hired a qualified person to look after all things accounting/finance?”

In as much as you may have had this conversation with yourself any number of times over the past twelve months, you’ve been putting off hiring your first CFO. Now let’s talk about why.

Reason #1: Cost

Hiring a Director or VP of Finance for most owner-manager businesses with revenues in the range of $25mm to $50mm is going to run anywhere from $140K to $180K plus bonus.  Btw, I’m not addressing how much a Director or VP Finance makes in a firm with revenues in range of $75mm to $150mm because firms of that size aren’t usually hiring their first finance executive (however they may be thinking of upgrading the Director of Finance slot to VP of Finance).

Reason #2: Time

Recruiting any executive can be a huge time sink. You have to put together a decent job description, post it on a job board(s), sort through the resumes, make time to do interviews etc. and you know the process will take two or three months. And of course, there’s no guarantee that you’ll find what you’re looking for.

Reason #3: You Don’t Know What You Need

Since this is the first time you’re going to go to the market to recruit a finance executive and since you’re not a finance type yourself, you probably don’t know what iteration of finance executive you should hire and what qualifications you should be on the look-out for. Do you need a Controller? A Director of Finance? VP Finance or CFO?

These are all good reasons to factor in as you consider hiring your first financial executive. The good news is there’s a relatively straightforward way of successfully dealing with reasons 2 and 3 which I’ll get to later in this article (spoiler alert: it involves working with me).

Breaking Down the Cost Equation

So, let’s talk about Reason #1: cost. But not the cost associated with hiring a professional to run your finance function, but the cost of not hiring a pro to run your finance function.

 

Cost Guestimate #1:

Since you’re the person who built and runs the business, let’s make the not unreasonable assumption that your time is worth more than anyone else’s on the organization chart and not by a little bit, but by an order of magnitude.

Let’s say that you’re spending 10% to 20% of your time dealing with issues that could be dealt with by a Director of Finance. You can also factor in the time you spend on issues not strictly finance related but could be delegated to a finance executive like sussing out a new ERP system or new plant lease or any special project for that matter.

So that means you’re spending anywhere from five to fifteen hours a week on these activities and assuming your time is worth $1000/hour, that adds up to $5,000 to $15,000 a week. If you delegated all these tasks to a finance executive whose nominal rate is less than $100/hour, you get to spend most if not all of your time on what you do best – building your business.

Cost Guestimate #2:

Do you and your management team know exactly how much it costs to produce and deliver your product or service? Do you know what’s making you money and how much? Do you have the KPIs and dashboards in place that allow you and your team to make timely and fact-based decisions around the operation of your business?

How much better would the business operate and how much faster would it grow if you had those KPIs and dashboards in place?

Cost Guestimate #3:

Very few $50mm in revenue companies had a plan on day one on how they planned to get to that number. They usually have a plan on how to get to $1mm, then $5mm, then $10mm and so on, revising on the go as their market share and operation gets bigger. Businesses grow organically and as much as there may be an overall vision, there’s seldom an over-arching plan on how to get from zero to $50mm in revenue in most logical, efficient and cost-effective way possible.

If this is you, the good news is that you’re at (insert your top line number here) in sales. The not-so-good news is that there may be a lot of duplication, inefficiencies, and general money-wasting going on.

A qualified finance executive will be able to identify and rectify these issues possibly saving you the cost of their salary, or even multiples thereof, in the process.

Addressing Reasons 2 & 3

DIY recruiting is in fact a huge time sink and it usually doesn’t produce optimal results. The active candidate pool responding to your job posting only represents 10%-15% of all the candidates you could be considering. Most good finance executives aren’t responding to job postings, but they will respond to someone proactively contacting them about a new position (fun fact – 1 in 6 finance executives are passively on the market).

As to which iteration of financial person you should hire – Controller, Director of Finance or VP of Finance – that will be a function of your company’s size, complexity, and future growth plans.

Retaining an executive recruiter who specializes in this market is the obvious (if somewhat self-serving on my part) way to address reasons 2 and 3. You won’t have to spend a lot of time or effort on the process and you’ll end up with exactly the financial executive you need to help take your company to the next level.

If you think you may be in the market for top financial talent in the next few months, call me direct or email me, for a no obligation consultation.

(416) 567-7782 [email protected]

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