Chief Financial Officer For Hire

If you don’t need a fulltime CFO, hire a temp.

by Steve Gooch

Finances are the most important consideration when operating a business, especially in today’s economic climate. Cash and access to it can make or break a venture, so your company’s ability to handle it properly is crucial. Most midsize and larger companies employ a chief financial officer who is in charge of directing the company’s financial strategy and guiding the related segments of the company toward the appropriate goals.

But though small companies often can’t afford or don’t need a full-time CFO, good fiscal policy is just as critical for them as it is for the big boys. “Businesses live or die depending on how they handle their cash,” says Jeremy Andrus, president of Utah-based audio equipment-maker Skullcandy. He says Skullcandy realized its need for financial direction early on, while the company only had four employees. But hiring a CFO to oversee a quartet was out of the question. So, Skullcandy decided to contract with a company that provides financial officers on demand. “We started using Kent Thomas and CFO Solutions probably in 2004. The reason we did it initially is the company didn’t have the scale where it made sense to have a full-time CFO.”

Too small to scale

But what does a for-hire CFO do? “The easiest way to explain it is he does everything that you would expect a CFO to do in a large organization,” says Ken Kaufman, founder and CEO of Utah County-based CFOwise. “That would begin with being a member of the executive team, being a No. 2 to the CEO and operating and thinking and existing as one of the strategic thought leaders of the firm.”

Hiring an independent CFO is a logical option for a smaller company unwilling or unable to take on the expense of another staffer — especially one garnering a six-figure salary. “In Utah, a full-time CFO of a company with revenues of $30 million or less will have a baseline salary of under $120,000 to $175,000,” says Kent Thomas, founder and managing member of CFO Solutions, a Sandy-based financial services outsourcer. He notes that the costs of using an independent CFO can be as low as 25-50 percent of the cost of hiring a full-timer.

But, Kaufman says the costs could go even higher. When taking into account the associated costs of on-boarding a new c-level employee — including bonuses, payroll, benefits and other compensatory agreements — the price of a full-time CFO could reach $200,000 a year. He says that because a CFO for hire is, by nature, often a part-time worker, the savings can be even greater. “It will range anywhere from a half-day a month of need all the way up to two to three days a week of need. It’s possible for some companies to have a CFO on staff for as little as $750 to $1,000 a month.”

But aside from cost is another concern: Does your company even need a full-time CFO? Granted, every company needs a financial expert to work the books and keep the cash flowing, but is hiring a new executive necessary? Thomas notes that smaller companies often don’t have the workload required to keep a high-level worker busy. “If they hired a full-time CFO, he’d end up doing clerical work and things unrelated to his job and that are not a good use of his time or a good leverage of his or her expertise.”

Kaufman agrees. “The philosophy that we work under is that every business needs a CFO, but with the concept of independent CFOs, they should all be able to afford one on an outsourced, use-exactly-what-you-need basis. Usually a company doesn’t need a CFO on a full-time basis until they hit a certain level of sales and complexity.” He notes that the threshold is different for every company; while some fast-growing companies might need to find a full-timer immediately, companies that show slow-and-steady revenue growth could wait a bit longer before starting a search.

Take history into account

If your organization decides to use a CFO for hire, there are a number of things to consider. First, research the company or individual you are planning to contract with. “Check out background and references just as you would an employee,” advises Thomas. “It should be easier to check out an outsourced CFO, because he or she should have a lot more clients and people to refer you to.”

“You want to have somebody who has at least a decade of really good senior executive-level experience,” says Kaufman. But, he suggests that while executive experience is good, size is often more beneficial. “There’s a big difference between running a large corporation and running a small to medium-size business. So, if you’re hiring an independent, it has to be someone who knows and understands the challenges, concerns and problems of business owners, entrepreneurs and founders of startup, emerging and medium-size businesses.” Further, Thomas believes that even mere experience isn’t enough: “It’s not just experience, it’s successful experience — experience delivering results.”

Add a dash of variety

While a full-timer may know the ins-and-outs of your particular business, an outsider can often bring a fresh perspective to issues that may crop up or can provide new efficiencies derived from other businesses or industries. Barbara Ray, founder of Vantage Point Advisors, a Salt Lake City firm that provides CFO expertise to private individuals (see sidebar), says independent CFOs often bring a variety of experience from many different past and current positions. Along with those experiences, they bring the knowledge of approaches that worked for those organizations as well as the chops to apply them. “The most successful CFOs are most successful when they switch industries, because they bring something that has worked well in a different industry,” she says.

Kaufman believes similarly that CFOs with diverse backgrounds often have a more complex view of an individual business than do single-company executives, especially with respect to problems or process improvements. “An effective CFO has both breadth and depth in terms of background and applicable skill sets. It’s very common that my clients ask me, ‘How do other industries handle this problem?’”

Outside looking in

“I think it’s very positive to bring a different perspective into the company that is more focused on what is happening economically rather than emotionally to the business,” says Bob Bench, managing partner of the Salt Lake City branch of Tatum, a national provider of interim CFOs and controllers (see sidebar). “What we find is many times in a business, a CFO and CEO have developed a relationship over the years that doesn’t allow them to take into account what the real economies are of the business.”

Sometimes a reality check is exactly what a company needs to succeed. When employees are invested in a particular company, they are sometimes unwilling to “upset the apple cart,” according to Kaufman. An outside observer can often see things that insiders are either accustomed to or that they just plain disregard. More importantly, outsiders are beholden only to financial accuracy, so internal company politics have little effect on their performance. “In a market like today’s, it’s a harder thing to stand up and do the right thing for the company and its shareholders,” says Thomas. “As CFO, your fiduciary responsibility is to the shareholders, not the management team. If we’re ever asked to do something unethical or that we have a difficult time supporting, we’re able to stand up a little bit more directly to that.”

Your new right hand

One thing you may not have considered to this point is the probability that you will come to rely on your part-time CFO far more than you expected. “Do [you] want a partner?” asks Ray. “Because that’s what the person has to be. Not necessarily monetarily, but within the business. A side-by-side partner. They’ve got to be in your hip pocket or you’re going to be frustrated. You have to work well together.”

Because of the trust necessary to keep the relationship on track, the CEO and CFO need to be as close as Butch and Sundance. “The CFO needs to be [the CEO’s] strategic partner when running the firm,” says Kaufman. “The CFO is somebody that the CEO needs to talk to before any business decision is made. Somebody the CEO respects, has a good working relationship with and that the CFO really truly understands their business.”

So long and thanks for all the fixes

Ultimately, the goal of a for-hire CFO is to be fired. No, not for fiduciary shenanigans or monetary misconduct, rather because if they’ve done their job right, your company will come out the other side of a relationship larger and better positioned for success. “You get to a certain size and you say, ‘Now it makes sense for me to hire a full-time CFO,’” says Andrus. When your company grows large enough, a CFO will be absolutely necessary both because of the complexity of your company’s transactions and to put at ease the minds of your shareholders and federal overseers.

Independent CFOs, while you have them, are valuable additions to your c-suite. “You treat them as your own and they become part of your organization, but you realize that as your business grows and scales, you’re going to bring those services in-house,” says Skullcandy’s Andrus, whose company still uses CFO Solutions periodically for specialized products. “Kent [Thomas] told me once that they consider themselves successful when they’ve worked themselves out of a job. It’s a mark of success.”

CFO At Home

Sometimes you need help on the homefront, too.

Though financial representation is a requirement for most companies, it’s generally not even considered for the owners of those businesses. Barbara Ray, founder of Vantage Point Advisors, thinks it should be, especially when the business owner is looking to divest him- or herself of the company. “My clients come to me when they’re thinking about leaving their company, need an exit strategy and they want to plan for it — or they’ve done it and they don’t know what to do next,” she says. Part of that involves helping the now-former CEO plan the company’s sale, gift to employees or stock exchange, but also what happens afterward with the family finances.

She says that CEOs are often so involved with company work that they forget to consider the personal side. So, as the CEO’s personal CFO, Ray handles the family’s finances, including wealth management. She says a major component of her work involves getting wives up to speed on how the company is really doing. “The husbands are intimately involved with how the company is faring, while the wives aren’t usually involved in those discussions, but they should be,” she says. Wives often assume that their husband’s company is doing just fine because money is coming in, but they aren’t exposed to the realities and risks associated with business. The same is often true for a woman owned venture

If you consider hiring a personal CFO, what should you look for? Says Ray, “The first thing is credentials and background, the second thing is personality — do you like them? — because you’ll be working with them the rest of your life theoretically.”

Chief Fill-in Officer

Keeping your finances in order when you’re between moneymen.

“Many companies at this point in time have a lot of changes,” says Bob Bench, managing director of Tatum’s Salt Lake City branch. “The average stay for a CFO in Fortune 500 companies is 28 months.”

The reason? As companies merge or are bought and sold, CFOs are often the first to find out. The other thing they know is that the incoming CEO of the newly formed company generally brings his or her own trusted financial advisor. So, the CFO decides to jump ship before being forced off the plank.

In the meantime, the company is operating without a financial rudder. Tatum is one company that offers services to help companies in this position. “We’re able to step in as CFO and serve that company and we actually become their CFO and begin working within hours,” says Bench.

The independent CFO then fills in while the company searches for a replacement, which generally takes 3-6 months but can stretch as long as a year. Often, the financial services provider takes part in the search as well. Jeremy Andrus, president of Skullcandy, used CFO Solutions in such a way: “We brought Kent [Thomas] into the interview process so we can get his input on not only prospective CFOs, but as someone who has hired CFOs.”

While the situation isn’t ideal, having a part-time CFO fill in until you can find a full-timer is a great solution for keeping your finances in order.