How does an emerging business balance it limited resources with management needs during high growth stages? Too often, the business compromises by expecting too much from its loyal base of core employees or gambling on a new full time hire to provide all needs of a department. Such is often the case in the finance department, where skills of a Chief Financial Officer are often needed - just not on a full time basis. Often an emerging business will look to a seasoned mid level manager, such as a cost or financial accounting manager, who feels compelled to “step up” as Director or CFO, while carrying the burden of prior responsibilities. The company needs seasoned experience and reliable financial records. The new manager wants to excel as a CFO but may also be responsible for (and be best suited for) detail activities. This potential “mis-fit” may result in poor decisions, deteriorating banking relationships, inaccurate records, and most importantly, an employee simply not working out at a time the business is experiencing high growth.
As an example, consider the manufacturer with a core product line wiht steady growth, supplemented by a new product with significant growth potential. The senior lender is willing to provide overadvances to ramp up the new product, provided a CFO is in place. The firm promotes its cost accountant, who assumes the new senior responsibilities. Information slows, the cost accountant compromises all assignments, and the company rolls out a new product absent reliable information. Product pricing decisions become knee-jerk. Bank overadvances are misdirected to an overzealous promotion program. The CEO senses "something is wrong", bank reports drift to unreliable, and the lender begins to limit cash advances. The company has now jeapordized both products, and its banking relationship.
The emerging business should consider this alternative: an experienced part time contract CFO, working 10-20 hours per week, applying top level skill to:
Clarify business strategy
Align financial resources with company needs
Organize and manage a reliable finance department
Develop sound finanical thinking within sales and operations
Assist top management in sound decisions during high growh phases
Rather than investing in a full time CFO, company resources are better directed towards accounting and clerical support to ensure reliable financial records. The part time CFO then builds financial metrics that binds daily performance with the overall business strategy, involving sales, operations, human resources and financial metrics to company goals. Custom metrics drive the business towards a “forward looking” posture. Bankers, directors and shareholders quickly ascertain the credibility of the experienced CFO, and appreciate and honest assessment of "the company does not need a full time CFO". Part time CFO's typically are engaged on an hourly rate, with a minimum retainer. Compensation in company shares is negotiable. As the business develops, the part time CFO assists with candidates to assume the full time CFO role. Often this transition is concurrent with an initial instututional financing round, or an exit to a strategic buyer.