Does Your Business Need a Chief Financial Officer?

RALSTON CONSULTING INC.’S BUSINESS ADVISOR SERIES: CFO

FocusCFOImageDo you need a Chief Financial Officer for your business? To get the straight goods, we interviewed two highly regarded colleagues, Brad Martyn and Bruce Collen, partners at FOCUS Business Solutions. They offer outsourced or contract Chief Financial Officer (CFO) services for small-to-midsize business in central Ohio.

Ann and I have had the pleasure of working with CFOs from FOCUS, and we have found the combination of our firms to be a powerful force for our clients. Ralston Consulting Inc. provides the business insights, strategic planning and organizational structure, while FOCUS validates the business model, assists with scenario planning and helps business owners implement financial management controls necessary to bring the strategic plan to life.

Join us for some “CFO-Talk” as we shed light on this vital member of a businessperson’s advisory team.

Q: As a business owner, how do you know you need a CFO?

Brad: It depends on the size of the organization, to start with. In most large organizations, they’ve had a CFO in the past. In contrast, I don’t think a small business owner is necessarily educated about what a CFO is. They tend to think that a CPA fills the void.

Q: So what is the most crucial difference between a CPA and a CFO, for the small business owner -for the guy paying the bill?

Bruce: A CFO is a strategic business partner, really…

Brad: Yes – CFOs are focused on working inside the business helping it generate wealth – ensuring proper capitalization, fostering the right banking relationships, addressing compliance issues – focusing on the company as a whole. Often CPA’s tend to be more focused on specific tasks. Is the year-end audit done? Is the tax return done? They add value, but it is in a much different way than a CFO.

Bruce: While both are vital to a business, a distinction we see is that the CPA’s dominant focus is historical – looking back to prepare tax returns and financial statements. The CFO, though, needs to be a forward-looking, integral part of the management team. Often the CPA works for the business, while the CFO works in the business. Big difference.

Brad: It’s like the difference between your fitness coach and your doctor. You visit the doctor for the annual checkup and you try to keep them informed during the year as you see them, but the fitness coach is there, weekly and monthly helping you achieve your goals. A CFO is a financial fitness coach for your business.

Q: If many owners are unclear about the distinction, what is the wake-up call that highlights to the businessperson that they are flying blind toward the future? What triggers them to seek a CFO?

Brad: Likely an advisor – their banker, or attorney, or CPA – will tell them. Someone who understands the business and the owner will see the need. Often the business owner does not know how a CFO can help or what they really are. Once an advisor helps them see the need, the owner quickly sees the benefits and how critical it is that they consider taking the step.

Bruce: There may be working capital needs, and the Banker will arrive and say: “Your financial house is not in order, and must be put in order before you get any consideration.”

Brad: Be a banker, for a second. If you are trying to lend money to somebody who wants $500,000 for their business, you are trying to figure out what they are going to do with the money, and how they will service the debt, long-term.

People don’t understand that banks only make about 2 % on any deal that they do. If you are paying 6 %, they probably pay 4 % for that money. Figure 2 % on a million dollar loan – the bank is maybe making $20,000 a year. It’s a hard business where they must evaluate what the payback and the risk is for the bank.

So the banker says: “Let me see your budget. Let me see your projections. Let me see last month’s financials.” If the business owner says: “I don’t really have that…” the banker may be less comfortable lending, especially if the money is for future growth plans and there of no evidence of what the plan really is. Many bankers will tell the business owner that in order to grow, they need stronger management reporting and better internal controls – to advance beyond business by intuition into business by forecasting and reporting. Often at that point, they will recommend a CFO.

Bruce: Another wake-up call is when a spouse or an advisor points out that they have been consumed by administrative and financial tasks, and have long lost sight of the things that let them grow their business in the first place.

Brad: The typical “E-Myth” problem of working in your business rather than on your business.

Q: After, say, a year of working with a CFO, what do small business owners discover that they really value?

Brad: As a small business owner, a lot of times what you want is someone to discuss key business issues with, over time. It’s a combination of an advisor, and a partner, and a confidant, and a friend – someone who understands your business that you can have an adult conversation with. Not about debits and credits, or what the balance sheet is, but it’s about: “This is my business. This is my life.”

Q: So with a CFO they get a trusted, credible advisor?

Bruce: Yes, and that’s possible in part because we’re onsite on a regular basis. We are truly part of their management team. We understand their business. We develop the relationships there that let us be most effective.

Q: As strategists, Ann and I are shocked to find many businesses operating with strategic goals but no operational measures of progress or success for management decisions – truly running blind. How can a CFO help?

Brad: In every business there are, say, 3 to 10 measures – ‘metrics’ is the buzzword – that effectively give you insight on how your business is doing. A lot of people try to run their business with a financial statement, and it doesn’t tell you those things. To begin with, it’s too late, and it’s historically focused. Metrics come out every day. What were my store sales yesterday? What was my profit margin yesterday? What was my gross margin on a project yesterday? What is it going to be in the future? What is on your dashboard?

Bruce: An aircraft pilot needs a clear view of the horizon and out the side windows. They don’t fly the plane with a rear-view mirror. They also need up-to-date instrument readings – altitude, heading, speed, and fuel. As CFOs, it’s our job to help owners build a concise but informative instrument panel for their business.

Q: What is your parting tip for our readers with regard to financial management?

Brad: Business owners can make decisions thoughtfully, with the numbers; arbitrarily, by the numbers; or blindly, without numbers. Make sure you have good information as the basis for good decisions, as opposed to making decisions without.

Bruce: In the search for financial support, from either a full-time or a contract CFO, it is critical to ensure uncompromising integrity and ethical standards. This person will be representing your business and your future to many, both inside and outside your firm.

Brad Martyn and Bruce Collen can be reached in Columbus, OH at 614-944-5760 or at info@focuscfo.com

© 2005 Gary Ralston

About the author: Ann and Gary Ralston founded Ralston Consulting Inc. to help accelerate business growth for their clients – from startups to global corporations – across North America. Based in Columbus, Ohio, Ann and Gary can be reached at 614-761-1841, info@ralstonconsulting.com, or through www.ralstonconsulting.com.

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Date: Sunday, August 18th, 2019 - 06:43:02am



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